[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
BANKING THE UNBANKED: EXPLORING
PRIVATE AND PUBLIC EFFORTS TO EXPAND
ACCESS TO THE FINANCIAL SYSTEM
=======================================================================
HYBRID HEARING
BEFORE THE
SUBCOMMITTEE ON CONSUMER PROTECTION
AND FINANCIAL INSTITUTIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
JULY 21, 2021
__________
Printed for the use of the Committee on Financial Services
Serial No. 117-41
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
45-508 PDF WASHINGTON : 2021
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri ANN WAGNER, Missouri
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut ROGER WILLIAMS, Texas
BILL FOSTER, Illinois FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
RITCHIE TORRES, New York JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts BRYAN STEIL, Wisconsin
ALMA ADAMS, North Carolina LANCE GOODEN, Texas
RASHIDA TLAIB, Michigan WILLIAM TIMMONS, South Carolina
MADELEINE DEAN, Pennsylvania VAN TAYLOR, Texas
ALEXANDRIA OCASIO-CORTEZ, New York PETE SESSIONS, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts
Charla Ouertatani, Staff Director
Subcommittee on Consumer Protection and Financial Institutions
ED PERLMUTTER, Colorado, Chairman
GREGORY W. MEEKS, New York BLAINE LUETKEMEYER, Missouri,
DAVID SCOTT, Georgia Ranking Member
NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma
BRAD SHERMAN, California BILL POSEY, Florida
AL GREEN, Texas ANDY BARR, Kentucky
BILL FOSTER, Illinois ROGER WILLIAMS, Texas
JUAN VARGAS, California BARRY LOUDERMILK, Georgia
AL LAWSON, Florida TED BUDD, North Carolina
MICHAEL SAN NICOLAS, Guam DAVID KUSTOFF, Tennessee, Vice
SEAN CASTEN, Illinois Ranking Member
AYANNA PRESSLEY, Massachusetts JOHN ROSE, Tennessee
RITCHIE TORRES, New York WILLIAM TIMMONS, South Carolina
C O N T E N T S
----------
Page
Hearing held on:
July 21, 2021................................................ 1
Appendix:
July 21, 2021................................................ 49
WITNESSES
Wednesday, July 21, 2021
Baradaran, Mehrsa, Professor of Law, University of California
Irvine School of Law........................................... 5
Berlau, John, Senior Fellow, Competitive Enterprise Institute
(CEI).......................................................... 12
Del Rio, Deyanira, Co-Executive Director, New Economy Project.... 7
Pawar, Ameya, Senior Fellow, Economic Security Project........... 9
Rothstein, David, Senior Principal, Cities for Financial
Empowerment Fund............................................... 10
APPENDIX
Prepared statements:
Baradaran, Mehrsa............................................ 50
Berlau, John................................................. 63
Del Rio, Deyanira............................................ 69
Pawar, Ameya................................................. 76
Rothstein, David............................................. 81
Additional Material Submitted for the Record
Perlmutter, Hon. Ed:
Written statement of the American Bankers Association........ 117
Written statement of the American Financial Services
Association................................................ 130
Written statement of the Bank Policy Institute............... 132
Written statement of the Center for Responsible Lending...... 140
Written statement of the Consumer Bankers Association........ 142
Written statement of the Electronic Transactions Association. 144
Written statement of the Independent Community Bankers of
America.................................................... 148
Written statement of the National Association of Federally-
Insured Credit Unions...................................... 153
Written statement of Prosperity Now.......................... 155
Kustoff, Hon. David:
Written statement of the Consumer Bankers Association........ 142
BANKING THE UNBANKED: EXPLORING
PRIVATE AND PUBLIC EFFORTS TO EXPAND
ACCESS TO THE FINANCIAL SYSTEM
----------
Wednesday, July 21, 2021
U.S. House of Representatives,
Subcommittee on Consumer Protection
and Financial Institutions,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2128, Rayburn House Office Building, Hon. Ed Perlmutter
[chairman of the subcommittee] presiding.
Members present: Representatives Perlmutter, Scott,
Velazquez, Sherman, Green, Foster, Vargas, Lawson, Pressley,
Torres; Luetkemeyer, Posey, Barr, Williams, Loudermilk,
Kustoff, Rose, and Timmons.
Ex officio present: Representatives Waters and McHenry.
Also present: Representatives Tlaib and Ocasio-Cortez.
Chairman Perlmutter. The Subcommittee on Consumer
Protection and Financial Institutions will come to order.
Without objection, the Chair is authorized to declare a recess
of the subcommittee at any time. Also, without objection,
members of the full Financial Services Committee who are not
members of this subcommittee are authorized to participate in
today's hearing.
Today's hearing is entitled, ``Banking the Unbanked:
Exploring Private and Public Efforts to Expand Access to the
Financial System.''
I now recognize myself for 4 minutes to give an opening
statement. At the start of the pandemic a constituent of mine
reached out to my office. We can call her, ``Mrs.
McGillicuddy.'' Mrs. McGillicuddy did not have a bank account,
so she received her Social Security benefits in the form of a
direct express debit card. After the CARES Act passed, the
first wave of economic impact payments went to Americans with a
bank account on file with the IRS. So, Mrs. McGillicuddy had to
wait. When she finally did receive the paper check, Mrs.
McGillicuddy was forced to find a check cashing service where,
for a fee, she could cash the check. Compare that with the
experience of folks who had an account linked to the IRS. They
got the payments first, and for free.
One recent report estimates that CARES Act economic impact
payment recipients spent $66 million just to cash the first
round of checks. According to an FDIC survey, the number-one
reason why Americans didn't have bank accounts was because they
didn't have enough money to meet a bank account's minimum
requirement. This is one example of how expensive it is to be
poor in the richest country in the world.
As of 2019, one in five Americans was unbanked or
underbanked, and 5.4 percent or about 18 million Americans do
have not access to a bank account at all. An additional 16
percent or about 53 million Americans have access to a bank
account, but also rely on alternative financial services such
as money orders, check cashing, payday loans, or other services
in place of traditional banking.
There is also a significant racial disparity in access to
banking services. Latino households are more than twice as
likely to be unbanked or underbanked. And African-American
households are more than 3 times as likely to lack access to
traditional banking services compared to White households.
For the country with the most powerful economy in the
world, these statistics are unacceptable. However, I will also
note that this data was gathered before the pandemic and sharp
rising unemployment. Historically, unbanked and underbanked
rates are correlated to unemployment, so the true numbers may
be worse. If we want the economic recovery to be inclusive and
reach every community, we need to make sure people stop being
penalized for not being born on third base.
Today's hearing will examine trends in unbanked and
underbanked households, challenges to improving access to
banking services, and proposals to expand the availability of
safe and affordable financial services for everyone in every
community. Ensuring every American has access to a safe and
affordable bank account will make our economy stronger, protect
vulnerable consumers, and make our nation better prepared to
confront a national emergency.
With that, I now recognize the ranking member of the
subcommittee, Mr. Luetkemeyer from Missouri, for 4 minutes for
his opening statement.
Mr. Luetkemeyer. Thank you, Mr. Chairman. And thank you for
having this hearing today. I would also like to thank the
witnesses for being here today and agreeing to testify.
The topic we are discussing today is extremely important,
because getting more people in the banking system can have a
drastic impact on their lives. Not only do banks provide a safe
and protected way to store money, banking services generally
provide consumers with cheaper financial services than other
businesses involved in finance. For example, most banks offer
free checking accounts, check cashing, and deposits. Many offer
wire transfers at a cheap flat rate, but most allow cash
withdrawals at your financial institution for free.
Not only are these day-to-day services critical, but having
an existing account at a financial institution assists in
access to credit for both consumers and businesses. Look no
further than the pandemic, where we saw financial institutions
participating in the Paycheck Protection Program (PPP). In
addition, individuals with a bank account found it much easier
to get their economic impact payment from the IRS. I am sure
all of the Members here today have dealt with constituents
without a bank account who are still struggling to get this
money from the IRS.
Since 2009, the FDIC has surveyed and examined how American
households are using banking services. The latest survey from
2019 shows the lowest estimate of unbanked households since the
survey started. In fact, the household unbanked rate has
consistently fallen since 2011. This progress means that 3.7
million households in the United States have joined or rejoined
the banking system since 2011, an accomplishment that could be
accelerated at the same time it is examined to ensure that
progress is maintained.
So, what has worked and what has not worked in driving down
the unbanked rate? It is clear that the progress made since
2011 happened without a government takeover of the financial
system--3.7 million households joined the banking system
without the Federal Reserve offering checking accounts, without
the Post Office acting as a financial institution, and
certainly without the Consumer Financial Protection Bureau
(CFPB) taking over the credit reporting industry.
According to the FDIC, the single biggest factor that
lowered the unbanked rate was improvement in the social and
economic circumstances of a household. Put simply, the pro-
growth policies of the Trump Administration led to improved
circumstances for all Americans, and according to the FDIC,
drove 2.4 million households into the banking system.
There are also many noneconomic factors to consider when
discussing the unbanked population. For example, 16 percent of
unbanked households listed, ``not trusting banks,'' as their
main reason for not having a bank account. In addition, among
unbanked households, 56 percent were not at all interested in
even having a bank account.
Despite these difficulties, financial institutions and
stakeholders are looking at ways for private industry to bridge
the unbanked gap in this country. The FDIC recently started
GetBanked, a public awareness campaign to inform and inspire
consumers to join the banking system.
Furthermore, the Cities for Financial Empowerment (CFE)
Fund has partnered with financial institutions around the
country in the Bank On initiative, which offers low-cost
accounts for consumers. Raising awareness and increasing
innovation will be critical to lowering the unbanked and
underbanked gap in this country.
Congress should be looking to support new ways to provide
traditional banking services that reach the unbanked
population, to provide regulatory clarity for new technologies
in the marketplace providing financial access, and lastly
should not get the government involved in providing banking
services to consumers.
I look forward to the discussion of these topics with the
witnesses today. And with that, Mr. Chairman, I yield back.
Chairman Perlmutter. Thank you, Mr. Luetkemeyer.
The Chair now recognizes the Chair of the full Financial
Services Committee, the gentlewoman from California, Chairwoman
Waters, for 1 minute.
Chairwoman Waters. Thank you, Chairman Perlmutter. I am
pleased that this hearing focuses on access to banking
services, especially for communities in banking deserts.
Without a nearby branch to go to in the Los Angeles area, the
rate of unbanked households is higher than the national rate.
And the unbanked are disproportionately lower-income households
of color.
Having access to a bank account is fundamental to financial
security. Millions of Americans who did not have a bank account
during this pandemic had to wait weeks or months to receive
stimulus checks while they struggled to afford housing, to take
care of their loved ones, and to otherwise make ends meet. The
Wall Street megabanks have mistreated unbanked individuals for
long enough. Our constituents in California, Colorado, New
York, and across the country are fed up, and are advocating new
consumer center solutions, such as no-fee FedAccounts and
public banking.
I look forward to the testimony from our witnesses. And I
yield back the balance of my time.
Chairman Perlmutter. The gentlelady yields back. I would
now like to recognize the ranking member of the Full Committee,
the gentleman from North Carolina, Mr. McHenry, for 1 minute.
Mr. McHenry. Thank you, Mr. Chairman. Today's hearing is
another example of Democrats using the financial system to
score points with progressive activists. We are talking about a
very important issue, but the bills attached to this hearing
are much more of a partisan wish list than they are about the
substance of driving financial inclusion. Look at the
politically motivated move last month to take down the True
Lender bill, that makes things less clear, less certain about
bank and Fintech partnerships.
We know that Democrats want to drive a government-centric,
government-run financial system, a one-size-fits-all approach
which will not drive financial inclusion. I can tell you this:
The Federal Government is not innovative. It is not nimble. And
it will not increase financial inclusion. We can drive
financial inclusion with banks and Fintechs working together,
and provide consumers and small businesses with greater access
to affordable financial products and services, especially those
in underserved and rural areas. It is innovation, not a cudgel
that will drive financial inclusion. That should be the subject
of today's hearing, not the list of bills attached to this
hearing.
I yield back.
Chairman Perlmutter. The gentleman yields back.
I am now pleased to welcome each of our witnesses. We have
five excellent witnesses today. First, Ms. Mehrsa Baradaran.
She is a professor of law with the University of California
Irvine School of Law. Professor Baradaran's focus includes
firnancial inclusion, inequality, and the racial wealth gap.
Second, Ms. Deyanira Del Rio, who is the co-executive
director of the New Economy Project. Ms. Del Rio has worked for
more than 20 years on cooperative finance, immigrants' economic
rights, and equitable neighborhood development.
We have them both virtually attending today's hearing, so
thank you very much.
In the committee room, we have Mr. Ameya Pawar, a senior
fellow at the Economic Security Project. Mr. Pawar is a former
alderman of Chicago's 47th Ward, and is working on efforts
around guaranteed income, and public options in financial
services.
We also have Mr. David Rothstein, a senior principal with
the Cities for Financial Empowerment (CFE) Fund. Mr. Rothstein
leads the CFE Fund's work on the Bank On initiative through
account certification and coordination among stakeholders.
And finally, we have Mr. John Berlau, a senior fellow with
the Competitive Enterprise Institute. Mr. Berlau focuses on
public policy affecting access to capital, entrepreneurship,
and investments. And he is also a contributing writer for
Forbes.
Thank you all for being present today. You are reminded
that your oral testimony will be limited to 5 minutes. You
should be able to see a timer on the desk or on the screen that
will indicate how much time you have left. When you have 1
minute remaining, a yellow light will appear. And I would ask
you to be mindful of the timer, and when the red light appears,
to wrap up your testimony so we can be respectful of both the
other witnesses' and the committee members' time.
And without objection, your written statements will be made
a part of the record.
Professor Baradaran, you are now recognized for 5 minutes
for your testimony.
STATEMENT OF MEHRSA BARADARAN, PROFESSOR OF LAW, UNIVERSITY OF
CALIFORNIA IRVINE SCHOOL OF LAW
Ms. Baradaran. Thank you so much, Chairman Perlmutter,
Ranking Member Luetkemeyer, and members of the subcommittee.
Thank you for the opportunity to testify on this very important
issue.
The burdensome costs faced by millions of Americans
excluded from the nation's banking system are not new, but the
stakes have gotten higher over the last decade as digital
banking has become essential to full participation in the
economy.
The recent COVID crisis further exposed the inequalities
embedded in the nation's credit and payment system and revealed
the urgency for reform. I have a few recent examples. When
Congress acted decisively on behalf of Americans to send the
first and second rounds of COVID relief to struggling
households, many unbanked and underbanked Americans, the
population most in need of help, either did not receive
payments, or had to pay fees to collect from ATMs or tax
preparers. And many stood in long lines exposing themselves to
the virus, and that is to lower ATM fees.
Just recently, as Congress and the Administration acted
once again to send child tax credits, reports estimate that
about one in five families whose accounts are not linked to the
IRS database will have to jump through hoops to get these
checks, or pay fees, or never get the checks at all. This takes
time, stress, and a lot of money. It has been a blockbuster
year for banks. And they have collected over $31 billion in
revenue from fees alone. And remember, the Americans living on
the thinnest of margins pay the majority of the bulk of these
fees.
One out of 11 Americans spent $350 or more a year in
overdraft fees. That is a lot of money for families living on
the margins. Overdraft is one of the many reasons why it is
expensive to be poor in America. In fact, Black communities,
Native-American communities, rural communities, and the
elderly, those already living on the margin, pay the most
because they lack access to the nation's payment system. This
is not a problem of technology; it is a problem of policy. In
fact, I want to propose that we need not get bogged down in
complexity. The problem is straightforward. And I believe the
solution is also simple, which is usually not the case with
policy. The problem is this: The U.S. payment system is only
available to banks and their customers. If you are outside of
it, you have to pay a toll to use it. I urge Congress to open
up these tracks on which our nation's commerce runs to
everybody.
Congress need not reinvent the wheel. Congress already
created a public payment system, the Federal Reserve. The Fed's
explicit charter is to serve the public interest and to
increase the integrity, efficiency, and equity of the U.S.
payment system. That was the mandate Congress gave it. I urge
Congress to ensure that everyone has equal access to this vital
public utility. I believe that the most effective way to do
this is through a partnership between the Treasury, the Federal
Reserve, and the postal banking system.
The Treasury already maintains a relationship with
Americans through the IRS and the benefits infrastructure.
Instead of using a middleman to send checks, it can route those
payments through the Post Office, whose budget is actually
linked to the Post Office, and the Post Office has historically
been a bank in America and abroad.
On the consumer side, what this would look like is you
would go to your local Post Office, deposit your money, and
take cash out of the ATM without fees, set up automatic bill
pay to online or mobile banking, get a debit card to use when
you are out shopping or online, or link up to a digital
account, or a Fintech app. In fact, across the world, postal
banks more people than the Fintech industry or private banks,
and crucially, it allows many of the people to connect to
others digitally.
Digital banking is essential to modern commerce. But to
truly reach the unbanked and underbanked, you need a physical
location, the ability to deposit your cash wages and take out
cash to pay for goods. This is the first crucial step to
financial inclusion. This is because between 20 and 40 million
Americans don't have broadband internet access. Many Americans
do not have the mobile devices or computers, including elderly
Americans.
Most low- and moderate-income (LMI) communities still
operate at least some portion of finances in cash. They receive
wages in cash, or have to use cash to buy groceries or fresh
fruit, or to pay babysitters or rent. Research showed that for
the vast majority of Americans with an income of less than
$50,000, they prefer just a simple debit card, and don't have
that.
Why aren't banks serving these consumers? Over the past 10
years, as banks have become bigger and more profitable, 93
percent of bank branch closings were in LMI communities. Rural
Americans have lost over half of their banks. Banks don't serve
these communities for the simple reason that there aren't
enough profits. So, we can either try to keep coaxing the
industry through carrots and sticks, or simply offer services
directly through public banks. In fact, as banks have deserted
many of these low-profit ZIP Codes, the Post Office has
remained, in accordance with its public mission.
The Post Office has over 33,000 branches, and most of their
branches are in low- or moderate-income communities, and
Americans know it. Recent surveys showed that the Post Office
is actually number-one in America's most-trusted brand to do
what is right. And this is because the Post Office, in
accordance with what President George Washington inscribed into
law in 1792, has a very public service mission.
In conclusion, the Post Office is already a public
institution, it has a legacy of being a public bank in the
U.S., and it can do so again, making the lives of many
Americans a little easier and less expensive.
Thank you. Sorry for going over.
[The prepared statement of Professor Baradaran can be found
on page 50 of the appendix.]
Chairman Perlmutter. Thank you, Professor.
Ms. Del Rio, you are now recognized for 5 minutes.
STATEMENT OF DEYANIRA DEL RIO, CO-EXECUTIVE DIRECTOR, NEW
ECONOMY PROJECT
Ms. Del Rio. Thank you. Good morning, Subcommittee Chairman
Perlmutter, Ranking Member Luetkemeyer, and members of the
subcommittee, as well as Committee Chairwoman Waters. Thank you
so much for the opportunity to testify today on behalf of the
New Economy Project, an economic justice organization based in
New York City.
For 26 years, our organization has worked with community-
based organizations and low-income New Yorkers to combat
persistent redlining, predatory lending, and other inequities
in our financial system and economy that serve to perpetuate
racial wealth inequality, neighborhood segregation, and
poverty. We work with community groups now to advance public
banking and strengthen community development financial
institutions (CDFIs), and to undertake other strategies that
democratize control over finance, land, housing, and other
sectors of our economy.
My comments today are also informed by my role as board
chair of the Lower East Side People's Federal Credit Union,
which is a U.S. Treasury-certified Community Development
Financial Institution, or CDFI, that has 35 years of experience
serving historically redlined communities across New York City.
My testimony today will address ways in which our current
financial system serves to extract rather than build wealth,
and the need to strengthen and enforce laws to hold banks and
other financial institutions accountable to people and
communities. At the same time, we must focus on creating public
banks and other institutions and infrastructure that can build
community wealth and serve the public interest.
First, I want to say, underscoring what you have heard
already, that barriers to banking access that this subcommittee
is addressing in today's hearing are long-standing and systemic
in nature. They, therefore, call for bold and systemic
solutions. Congress and the Federal banking regulators can and
should take comprehensive action to address persistent
redlining, discriminatory identification policies, predatory
overdraft fees, and other barriers that block or actively drive
the working poor and people of color out of our banking system.
At the same time, we must combat the notion that financial
innovation, or financial products and credit in particular, are
solutions to entrench poverty and inequality. To give you one
example, we have, across the country in the United States, 400-
percent APR payday loans that extract wealth from working-poor
families. Their solution, the antidote to these injurious loans
is not to develop less predatory short-term loans, but rather
to ensure access to living wage jobs, truly affordable housing,
strength in safety nets, and other measures that address root
causes of economic insecurity.
And finally, we need fundamental change in new institutions
to create a financial system and an economy that works for all.
I am especially pleased to share our organization's work in New
York City and State to advance local public banks, which we see
as critical to fostering strong local economies and adjust
recovery.
Public banking is common throughout the world, and on the
rise across the United States. Public banks are financial
institutions owned by public entities like a city or a county
that hold public deposits and are chartered to serve the public
good, rather than in the interest of private, profit-seeking
shareholders.
Through public banking, local governments, like ours in New
York City, can build on what is working in our financial
system, partnering with CDFIs and other community-based lenders
to expand fair banking access, and to deepen investment in
affordable housing, small businesses, renewable energy, and
other critical infrastructure.
Public banks also allow local governments to control their
money, our public money, and to move it out of banks that
engage in redlining and predatory financial practices, and that
finance fossil fuels extractions, real estate speculation and
displacement, and other activities that harm local communities
and run counter to our public policy goals.
New Economy Project is coordinating two broad-based
coalitions in New York to advance public banking. We are
advocating for passage of State legislation, the New York
Public Banking Act, that would create a safe and appropriate
regulatory framework for cities, counties, and regions that
want to establish public banks.
This legislation has gained massive traction, with 65
legislative cosponsors and broad-based support from more than
100 community and labor organizations, and New York-based CDFIs
and responsible lenders.
The Federal Public Banking Act would be a game changer to
local endeavors like ours by providing technical assistance and
grants to support the formation of mission-driven public banks,
to give local public banks access to the Federal Reserve's
payment systems and create other frameworks of support. Public
banking would serve as an especially powerful tool as cities
and States throughout our country work to advance a just
recovery from our pandemic, and to withstand future crises.
We have seen that countries which have public banks are
significantly more resilient in the face of crises than those
without them. And that is precisely because local public banks
invest in sectors that provide direct economic, social, and
environmental benefits. And in the context of the growing and
interrelated crises we face--health, housing, racial
inequality, and climate crises--we believe the Federal
Government must take bold action to support these efforts and
transform [inaudible].
Thank you, again, for the opportunity to testify.
[The prepared statement of Ms. Del Rio can be found on page
69 of the appendix.]
Chairman Perlmutter. Thank you, Ms. Del Rio.
Mr. Pawar, you are now recognized for 5 minutes.
STATEMENT OF AMEYA PAWAR, SENIOR FELLOW, ECONOMIC SECURITY
PROJECT
Mr. Pawar. Thank you, Chairman Perlmutter, Ranking Member
Luetkemeyer, and members of the subcommittee. My name is Ameya
Pawar, and I am a fellow with the Economic Security Project in
the Open Society Foundations, where I work on guaranteed income
and public banking policy. These are both issues that were very
different just a few years ago when I started working on them,
when I was on the City Council in Chicago, but have converged
over the last 18 months as a result of the global coronavirus
pandemic. I will get to that in just a moment.
It is an honor to be here, and I am here to express my
support for FedAccounts and public banking, not one or the
other, but both. And the reason why is that they are both
market-based solutions to solve widespread financial exclusion.
At a very basic level, every person, every small business,
needs a bank account to receive money, to deposit earnings, to
save, to pay bills, and to be able to do so without paying
exorbitant fees or extraction.
And then, people and small businesses need access to
wealth-creating loans, home and business loans. These loans are
the foundation of economic development in this country, loans
that banks make, make banks sort of a public policymaker when
they decide who gets money, who gets loans, and who doesn't.
And today, we have widespread economic exclusion, where 25
percent of Americans are unbanked or underbanked. And they are
paying up to 10 percent of their incomes annually to be able to
access basic financial services. So what we have is a system
where the more money you make, the cheaper it is to manage your
money. And the less money you make, the more expensive it is to
manage your money. And the more money you make, the cheaper it
is for you take out loans and create additional wealth. The
less money you make, you are prohibited from taking out those
wealth-creating loans.
FedAccounts would bring millions of people into the banking
system who currently are excluded. It would restore trust in
the system and make it possible for them to carry out their
financial affairs. On the other hand, the Public Banking Act is
transformational because it allows counties, cities, and States
to set up public banks that can channel capital to small
businesses that could originate micro mortgages and loans for
first-time home buyers, and it could finance new public options
for housing, childcare, and broadband, all of which are market-
based additions to the existing economy, and all of which are
necessary as part of a healthy market.
I started working on both of these issues when I was coming
to an end of my second term at the City Council. When I first
got there 10 years ago, I thought the best way to combat
inequality and poverty was to pass legislation and reform
government programs, so I worked on efforts with my colleagues
to raise the City's minimum wage, provide guaranteed paid sick
leave, and combat wage theft. I worked on reforms on tax
increment financing, I worked on Opportunity Zones. I
interfaced with philanthropy and other government grants. And
what I found was that all of this work, just worked on the
margins; it wasn't enough to drive economic development in
communities. It was necessary and critical work to lift wages,
but if you raise your wages and it costs you money to cash your
paycheck, if it costs you money to pay your bills, if you don't
have a bank account to save, and you have no access to wealth-
creating loans, you are basically giving people a weighted life
jacket.
And to me, in my mind, that is why what we need are basic
bank accounts and access to wealth-creating loans. And that is
why both of these pieces of legislation are important. The
other thing I might add is that banks, when they choose to
serve a community or choose to deny a community, that is an act
of public policy.
You see, when banks systemically lend within the community
to homeowners and businesses, that broadens the tax base. That
increases property values. That increases property tax
revenues. And when you do that systematically over and over
again, more people buy homes, more people open businesses, and
that creates a healthy economy. When you deny communities
that--we all have driven through communities that are littered
with payday loan centers, and currency exchanges, and tax prep
centers. There are also communities where you see less tax
revenue, lower property values, and so on and so forth.
So when banks decide to choose to serve a community, they
are exercising public policy. And I just think it is worth
asking ourselves, should this much policymaking power be
concentrated in the hands of a few, or should we create a
healthy market with public options such that everyone has
access to a bank account and wealth-creating loans to drive
economic development?
Thank you.
[The prepared statement of Mr. Pawar can be found on page
76 of the appendix]
Chairman Perlmutter. Thank you, Mr. Pawar.
Now, I recognize Mr. Rothstein for 5 minutes for his
testimony.
STATEMENT OF DAVID ROTHSTEIN, SENIOR PRINCIPAL, CITIES FOR
FINANCIAL EMPOWERMENT (CFE) FUND
Mr. Rothstein. Thank you, Chairman Perlmutter, Ranking
Member Luetkemeyer, and members of the Subcommittee on Consumer
Protection and Financial Institutions. My name is David
Rothstein. I am a senior principal with the Cities for
Financial Empowerment Fund, known as the CFE Fund, where I lead
the national Bank On initiative.
The CFE Fund's mission is to work with municipal and other
partners to provide financial empowerment programs and services
on a large scale, and our work spans across more than 100 city,
county, and even State Governments.
Our Bank On program harmonizes financial institutions of
all sizes and types, local government, nonprofit partners, and
consumer advocates together through a national product
certification program with the goal of bringing unbanked and
underbanked households into safe, affordable, and fully
transactional bank and credit union accounts. On behalf of the
more than 100 financial institutions with certified Bank On
accounts, and our 90-plus coalitions around the country, I am
honored to testify today about how Bank On is here to meet the
moment you are so admirably prioritizing here.
Bank On is a success on a number of measurable levels.
Eight years ago, we established the first-ever national account
standards, with close consultation with regulators like the
FDIC, advocates, financial institutions themselves, local
elected officials, and community organizations. These standards
directly addressed principal concerns like overdraft and
insufficient fund fees.
We started with the four largest banks in the country
having certified products, but have quickly grown to 110 banks
and credit unions. In fact, certified accounts can now be found
in 40 percent of all of the branches in the United States.
Banks offering a Bank On certified account represent more than
51 percent of the deposit market share, according to the FDIC.
And more than two dozen of these accounts can be opened online
by new customers, further expanding that access to rural and
urban neighborhoods that don't have branches in their
communities.
The market for Bank On accounts is thriving. Led by our
partners at the Federal Reserve Bank of St. Louis, the Bank On
National Data Hub finds that these accounts are extremely
popular, and the market is really robust. In 2019, nearly 2
million Bank On certified accounts were opened in that year
alone. We also know that more than 85 percent of new account
openings were completely new clients to the financial
institution, a strong proxy for banking access.
We know that Bank On is helping the unbanked in the
hardest-to-reach markets. The FDIC finds that households of
color are 5 times less likely than White households to have a
bank account. A recent analysis by the Bank Policy Institute
found that more than 60 percent of Bank On accounts opened were
in neighborhoods with more than 50-percent minority population.
The widespread availability of Bank On certified accounts is,
of course, only part of the banking access equation. It is
connecting people to these accounts that makes the difference.
The Bank On equation looks for ways to integrate banking
access into large-scale funding streams. And our 90 Bank On
coalition partners help make that happen in their communities.
Almost two dozen cities, for example, incorporate Bank On
account opening into summer youth employment programs, and the
ability to rely upon the national account standards assures
those government leaders that these are the right accounts and
that they are safe.
Led in partnership by our Bank on Maryland Coalition, the
State of Maryland now facilitates Bank On account opening for
unemployment benefits. And now, the Treasury Department and the
IRS have been facilitating Bank On account openings, in
partnership with the robust efforts of the FDIC, with
facilitating account opening as a way to get both the economic
impact payments, and now the advanced child tax credit payments
as well.
All of this is to say that while we are thrilled that
policymakers and agencies are interested in widespread banking
access, Bank On is demonstrating today, right now, both that
you can get institutions to offer the right accounts and that
people will open them by the millions each year. Why create a
separate but equal system that would be incredibly complex and
take years to produce? Why ignore this very tangible solution
rather than amplify it?
Thank you for your time, and I am more than happy to answer
any questions that the committee has going forward. Thank you,
again.
[The prepared statement of Mr. Rothstein can be found on
page 81 of the appendix.]
Chairman Perlmutter. Thank you, Mr. Rothstein.
Mr. Berlau, you now are recognized for 5 minutes.
STATEMENT OF JOHN BERLAU, SENIOR FELLOW, COMPETITIVE ENTERPRISE
INSTITUTE (CEI)
Mr. Berlau. Chairman Perlmutter, Ranking Member
Luetkemeyer, and honorable members and guests of the
subcommittee, thank you for this opportunity to present
testimony on behalf of my organization, the Competitive
Enterprise Institute (CEI), at this hearing on the vital topic
of financial inclusion. CEI is a Washington-based, free-market,
public-policy organization founded in 1984 that studies the
effects of regulations on job growth and economic well-being.
At CEI, we have championed private-sector innovation that
promotes financial inclusion, and warned about government red
tape that contributes to the problem of the unbanked.
We sounded the alarm about Section 1075 of the Dodd-Frank
Act also known as the Durbin amendment, interchange fee cap
that transferred, through price controls, much of the cost of
the processing of debit cards from retailers, including very
large retail chains, to some of the nation's poorest consumers.
We pointed out that largely as a result of this measure,
the percentage of free, non-interest checking accounts, which
was 76 percent in 2009, went to just 39 percent in 2012. And a
George Mason University professor's study found that that may
have resulted in more than 1 million being unbanked.
In the last few years, there has been progress in more
Americans being part of a banking system, but there is still
much further to go. The good news is that both Fintech firms
and community banks and credit unions are producing remarkable
innovations. The government has a role in ensuring clear
disclosure and swift punishment of fraud, but should otherwise
refrain from either heavy-handed regulation or the creation of
State-owned financial service entities that could smother and
crowd out this innovation.
Of the bills being discussed today, I can say I support the
approach of the Expanding Financial Access for Underserved
Communities Act, that lifts regulatory barriers to individual
credit unions that decide it would make good business sense to
add underserved customers, based on their mission of service.
But while the credit union bill is a bottom-up approach to
financial inclusion, the other two offerings are top-down
approaches that would worsen the lot of the unbanked, as well
as many other American consumers of the financial system. The
Access to No-Fee Accounts Act is a version of what has been
called FedAccounts, in which the Federal Reserve would directly
compete with banks and credit unions to provide deposit
accounts to consumers. This approach raises a host of problems
involving privacy data security, crowding out private-sector
innovation, and depriving banks and credit unions of deposits
necessary to make loans.
The approach of the Public Banking Act of 2021 raises
similar concerns to FedAccounts, plus has uniquely troubling
aspects of its own, such as risk to the taxpayers who would
provide basically Federal guarantees to State-owned banks of
various jurisdictions. But perhaps, the biggest concern of this
particular bill is that financial exclusion, rather than
inclusion of a legal industry is one of its stated goals. The
bill prohibits banks with charters from providing loans to
making investments in and basically providing any financial
services incidental to a fossil fuel project.
Now ironically, the State-owned bank of North Dakota, which
has been touted as an example by some witnesses, would be
disqualified as a covered bank under this bill, because it
provides financing for drilling and fracking in the oil-rich
region of the State. My colleagues and I have been consistent
in saying that government officials should not use the banking
industry to lodge indirect attacks on industries they disfavor.
We support the SAFE Banking Act sponsored by Chairman
Perlmutter, to prevent the Federal Government from punishing
banks and credit unions that deal with marijuana businesses in
States where it is legal.
And we applaud Ranking Member Luetkemeyer's efforts to
uncover and then end Operation Choke Point, in which various
Federal agencies pushed banks to cut off businesses ranging
from guns to small-dollar lenders.
CEI believes that in all transactions involving
controversial but legal industries, individual financial firms
should be allowed to make their own assessments of reputational
risks.
We also believe a competitive market, free of heavy-handed
regulation and State-backed entities that would suppress
innovation and do other harms is one where all types of
entrepreneurs create products and services for all types of
consumers, enabling a financial system and economy that is both
dynamic and inclusive. Thank you for inviting me to testify. I
look forward to your questions.
[The prepared statement of Mr. Berlau can be found on page
63 of the appendix.]
Chairman Perlmutter. Thank you very much, Mr. Berlau.
I will now recognize myself for 5 minutes for questions.
And Mr. Rothstein, I want to start with you. Based on some
comments Mr. Pawar, Ms. Del Rio, and Professor Baradaran made
about how expensive it is to be poor in America with overdraft
fees, and high interest rates, and just fees generally. And
nobody even talked about parking tickets. If you add up all of
these things, it is tough for people who don't have much in the
way of resources.
You stated that more than 100 financial institutions now
offer Bank On certified accounts, but that is only a small
fraction of the total number of depository institutions in the
country. What obstacles do financial institutions face in
offering Bank On certified accounts? And what is CFE Fund's
strategy for continuing its expansion of the program?
Mr. Rothstein. Thank you for that question, Mr. Chairman.
The first thing I would say is that the growth is very fast-
paced. Back in October, November, we were at about 50 banks and
credit unions offering accounts. Now, there are more than 100
currently offering them. And as I mentioned, those financial
institutions make up about 40 percent of the branches in this
country, so it is a significant part of the banking
infrastructure that have accounts available.
I think what the obstacles used to be and what we really
worked hard on are, first, to make sure that there was one ask
of financial institutions when it came to checking accounts. I
think early on, there were multiple asks by many different
partners, whether was government officials or community groups.
And so, the Bank On ask is one ask, it is one account. It can,
obviously, have other accounts in their suite of accounts, but
the Bank On account is one very specific checking account that
is fully functional.
The other piece was that there were resource issues, too. I
think financial institutions thought that creating this type of
account would be challenging and hard, especially some of the
smaller financial institutions. The partnerships with the
American Bankers Association, as well as the largest core
processors in the country, have provided resources and help for
financial institutions to create these accounts. And, so, those
partnerships, in addition to the partnerships with regulators
like the FDIC, who had provided advice on language changes and
compliance issues, have been really helpful to the financial
institutions.
Chairman Perlmutter. Do the banks, or the credit unions,
anybody who is offering a Bank On account, do they get any
credit with the Community Reinvestment Act (CRA)? Or what
incentives might also be there to provide these kinds of
accounts?
Mr. Rothstein. That is a great question. Thank you, Mr.
Chairman. We do know that banks are getting CRA credit for
these accounts. Certainly, one improvement, and we did submit
comments on the recent request for comments on CRA, would be to
have a more established prominent role for receiving CRA
credits for offering Bank On accounts. For obvious reasons, CRA
focuses a good bit on lending, but we absolutely believe that
bank accounts matter, and so that would be a big part of this.
Chairman Perlmutter. Mr. Pawar, 83 percent of bank
respondents reported visiting a bank branch in person in 2019.
In your testimony, you described how Chicago has lost a
significant number of bank branches over the last decade. Can
you describe the importance of a physical bank branch location
and its impact on lending in serving hard-to-reach communities?
Mr. Pawar. Thank you for that question, Mr. Chairman. There
are two problems connected with this. One, in Chicago we have
lost over 200 bank branches in the City, primarily in lower-
income communities and communities of color. So, there is the
physical access to a branch that is incredibly important.
And then, there are lots of communities in Chicago and
around the country that have banks, but the banks just don't
serve the communities that they reside in. And so, we have two
problems really to solve, which is, one, we need banks to be
able to serve people, and then we need those banks to extend
wealth-creating loans. The elegance of FedAccounts is this: It
uses existing community banks as the conduit to extend those
accounts. In other words, the Federal Reserve would hold these
dollars, but the local community banks would be the conduit for
those accounts. So this isn't a replacement of community or
private banks; it is really an addition to the market.
The other critical piece is that there are 21 million
people who live in Census tracts that do not have a single bank
or credit union. And that is where the Post Office can fit in
and be the conduit for FedAccounts.
Chairman Perlmutter. Thank you. My time has expired. I now
recognize Mr. Luetkemeyer, the ranking member of the
subcommittee, for 5 minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
Mr. Berlau, your testimony caught my eye here with regards
to, you believe that the Truth in Lending Act means to
eliminate the use of APR for loans under a year length. I have
been talking about this for a long time, these short-term
loans. APR is not reflective of what the real cost is of a
loan, and therefore, it is really deceiving to the customer.
Would you like to talk about that?
Mr. Berlau. Yes, thank you for that question. The great
economist, Thomas Sowell, has said that if we measured the cost
of hotels the way we did the cost of short-term loans, then a
$100-a-night hotel room would be priced at $36,000, because
that is how much it would cost if you said there 365 days, or
360 days of the year. So, yes, it is really not appropriate
when a loan that is taken out for 2 weeks or a month where the
interest rate may be 30 percent, suddenly becomes 390 percent
when you measure it according to APR.
Mr. Luetkemeyer. Very good. Thank you for that.
Mr. Pawar, according to the Cambridge dictionary, the term,
``market-based,'' is defined as organized so that companies'
prices and production are controlled naturally, by a supply and
demand for goods and services rather than the government. You
made a statement that public banking is based on market-based
solutions. With this definition, explain what you just said
there? How does that fit in that definition of allowing the
production to be controlled naturally by supply and demand?
Mr. Pawar. Thank you for that question.
That definition doesn't exclude the fact that a publicly-
owned enterprise couldn't be a part of the market. For example,
one of the most--
Mr. Luetkemeyer. No, no. You said that, ``public banking is
based on--is on market-based solutions.'' Market-based
solutions to banking in public banking units. Have you ever
been in a bank? Have you ever worked for a bank?
Mr. Pawar. I have not.
Mr. Luetkemeyer. You have not. Have you ever been a small-
business owner or a business owner at all?
Mr. Pawar. No.
Mr. Luetkemeyer. So, you have been in the academic world
your entire life, or a think-tank world?
Mr. Pawar. And I also served two terms on the City Council
in Chicago.
Mr. Luetkemeyer. Okay. It is really interesting--you said
here that loans are public policy. If you ever worked in a
bank, or understood how banking operates, sir, you would know
that if the bank is not investing in its community, it is not
going to grow. The bankers want the communities to grow, they
want to invest in their communities, they want to make loans to
the community. The loans they don't want to make are the ones
where they don't believe the risk is worth the reward. The risk
is worth putting their own assets at risk for whatever they
want to make a loan for here.
So, loans are not necessarily public policy. Loans are how
you grow your community and grow the bank and the whole economy
around you. Your misconception of what goes on in the banking
industry is breathtaking for what you are trying to do here
today.
Ms. Baradaran, you talked about postal banking. And you
made the comment that it's hard for banks to exist in rural
areas because of low profit. Do you understand that Post
Offices in rural America make no money; they lose thousands and
thousands of dollars?
Ms. Baradaran. Yes, sir. But as George Washington and
Benjamin Franklin set up a Post Office, it cross-subsidizes.
Mr. Luetkemeyer. No, you missed my point here. You missed
my point. Your point was that it is difficult for banks to
exist in rural areas because the amount of business is not
necessarily enough to pay the bills. I can tell you, I live in
a town of 336 people, and my Post Office had half of its
service cut off. We are down to half-days now. And I can tell
you that looking at the cost of each one of the rural Post
Offices in my district, they lose money, between $50,000 and
$250,000 a year. So, when you talk about having the Post Office
provide services that are going to be wonderful for people, you
are going to add to the deficit of their ability to do business
and cost our country money.
Ms. Baradaran. I think this is a way to help--
Mr. Luetkemeyer. It is breathtaking, the lack of knowledge
when you start talking about these issues, of how the real
world operates. And it is very disappointing and very
unfortunate.
Mr. Chairman, I see my time has expired. With that, I yield
back.
Chairman Perlmutter. The gentleman yields back. The
gentleman from Georgia, Mr. Scott, who is also the Chair of the
House Agriculture Committee, is now recognized for 5 minutes.
Mr. Scott. Thank you very much, Chairman Perlmutter. This
is a very timely and very important hearing. I have been on
this committee during my entire 19 years in Congress, and I
have been working on this issue to find a solution. And we are
making some progress. But we have a tremendous problem--many
people don't know that out of our 50 States, their school
systems, only 17 of those States offer a single course in
financial education in their schools. We are way behind. I
managed to get a bill passed 2 months ago, the Financial
Inclusion in Banking Act, so we are making progress.
But now, here we are faced with a real live-wire situation
and that is this, we in Congress and the Biden Administration,
Democrats and Republicans, we passed a bill that requires
monthly payments for the job tax credit to 48 million families.
Now, ladies and gentlemen, let me share with you how stark this
problem is before us. We have this Child Tax Credit going out
to 48 million families in this country. However, today, 14
percent of these are Black families, 12 percent are Latino
families, and 2 percent are White families. That comes to a
total of 28 percent. So, we have the Child Tax Credit going out
there to these people, millions of whom don't have a bank
account. And they are subject to the predators--check cashers,
payday lenders. And we have to find a way to get these
individuals a bank account.
Let me just ask you, Ms. Baradaran--I hope I pronounced
that correctly.
Ms. Baradaran. Perfect.
Mr. Scott. Okay. What proposals, tell us, should Congress
be considering to ensure that Black families, Latino families,
and White families--and many of these in rural areas don't have
it. They are not even connected to the internet, but we have a
bill through the House Agriculture Committee to connect. But
you see we have these things in motion. So, what do we need to
do, Ms. Baradaran, to ensure that they are not left out of
receiving this tax credit, months and months periodically away?
Ms. Baradaran. Thank you. Thank you for the question. I
want to say, first of all, the proposals surrounding public
banking are really going to get to the core of some of these
issues that affect our Black and Brown communities and Native-
American communities. These are historic injustices that have
just compounded over time, just as interest does for capital.
But I want to say, look, when we talk about markets in banking,
it is a little bit of a misnomer, because the Federal
Government provides the basic infrastructure for the banking
system. And we give banks a charter, and they have a monopoly
on payments and financial transactions and credit. So, if banks
are not able to or are not making profits in rural communities,
then we, as a democratic policy country, have to ensure this
access.
And so, I think one of the simplest solutions is the postal
banking system, not because it has all of the bells and
whistles, but because it has a historic legacy of doing it, and
it is still in those areas. And this is a way to actually help
the Post Office maintain some of the revenue in the area. So,
my favored proposal for this particular topic is the Post
Office. Thank you for the question.
Mr. Scott. Thank you.
And Mr. Rothstein, as someone with a deep knowledge of this
initiative, how do you foresee the program reaching the
millions of Americans who don't have access to a bank account?
And I am including White families, too, not just Black
families, not just Latino families. There are many White
people, particularly in the rural areas; I deal with them all
the time. How can we help these people get bank accounts?
Mr. Rothstein. Thank you for the question. I think there
are a few ways. The first is, as I mentioned, we have about 90-
plus coalitions around the country that are at the very local
level working on this issue. They are trusted partners in this
work. Whether they are out of a Treasurer's Office, the mayor's
office, the United Way, whatever it might be, they are looking
to find programs like the Child Tax Credit program where people
are getting paid, or you need to make payments. Also, social
services, wrap-around social services, so finding where people
are at with trusted advisers and counselors.
Chairman Perlmutter. Mr. Rothstein, I am going to have to
cut you off. I'm sorry. The gentleman's time has expired.
I now recognize Mr. Posey from Florida for 5 minutes.
Mr. Posey. Thank you very much, Mr. Chairman.
Mr. Berlau, what flaws or hurdles are there in public
programs that private funding institutions don't have when
reaching the underserved markets?
Mr. Berlau. You said public programs, like FedAccounts?
Mr. Posey. Yes. What flaws or hurdles exist in public
programs that private financial institutions don't have when
they are reaching the underserved markets?
Mr. Berlau. I can just talk about their flaws as far as
things that can hurt consumers. With FedAccounts, the Fed would
have direct access to bank account info, and then, data
security all stored in one place would be vulnerable to
hacking, and other things. It displays also if the deposits are
there, then the banks and credit unions would not have that
money to make loans to small business.
I also think there is sort of an inherent tension when you
get to postal banking, municipal banking, that you are trying
to both serve consumers and make a profit for the government--
or keep yourself afloat, and that is--I have heard this postal
banking being justified as both rescuing the Post Office, and
we need to provide lower rates to consumers. If you provide
lower rates on borrowing, what does that do as far as the
fiscal concerns of the Post Office? So that inherent tension
there, like when you had postal banking, and it ended up that
private banks were paying higher interest rates in the 1960s,
which is finally the reason for its demise as far as the
original postal savings program.
Mr. Posey. Thank you.
What are the benefits of increasing the participation rate
of the population in financial institutions beyond the direct
benefits to the individual?
Mr. Berlau. Well, individuals would be able to build up
savings, build wealth for themselves, invest that, or maybe
build businesses for themselves. It would be very beneficial.
Mr. Posey. Thank you. If banks leave a community, what do
the people in the now-underserved community do when they need
emergency funds? Who tends to fill the void there?
Mr. Berlau. My organization has pushed for de novo banks
and credit unions, that we need to approve more new banks,
because I think retail banks and having banks and locations do
matter. But more and more people do banking online in all
sectors of income. So, I think there is just a combination of
digital and having physical banks, as well as de novo banks,
both online, digital, and the physical location, I think,
really help fill that gap.
Mr. Posey. Thank you. What has been happening in the free
market with financial access and banking consolidation?
Mr. Berlau. I think, a lot. Financial consolidation has
been driven by some of the very costly mandates of the Dodd-
Frank Act. I have talked to some community banks and credit
unions about things like the cost of the qualified mortgage and
other things. But I think the good news is you are seeing
Fintechs partner not just with large banks, but also with
community banks to provide more access to credit, access to
capital. And I think if you had some legal clarity about what
banks could partner, who is the true lender, that would be very
helpful.
Mr. Posey. Okay. Thank you very much. I appreciate your
frankness and the directness of your answers.
Mr. Berlau. Thank you so much.
Mr. Posey. Mr. Chairman, I see my time is about to expire,
so I yield back.
Chairman Perlmutter. Thank you.
Mr. Posey yields back.
The gentlelady from New York, Ms. Velazquez, who is also
the Chair of the Small Business Committee, is recognized for 5
minutes.
Ms. Velazquez. Thank you, Mr. Chairman, and Mr. Ranking
Member.
Mr. Rothstein, one in four women and one in two trans
individuals in the U.S. has been subject to severe physical
violence by an intimate partner. And 48 percent of survivors do
not have safe access to a bank account that is protected from a
harm doer.
First, how can we help ensure that Intimate Partner
Violence (IPV) survivors can gain access to checking and saving
accounts? And, second, how can we help ensure those accounts
are protected from harm doers?
Mr. Rothstein. Thank you for that question, Representative.
It is an incredibly sensitive and important issue.
I mentioned in my testimony that Bank On really works with
coalitions as well as government partners to find places where
people are making payments. The other piece which I should have
mentioned also is on social services. Having bank account
access for social services like this is critical.
Survivors need choices. So they need things, not just,
national accounts but local community bank accounts as well.
They need to know that they are safe in terms of accessing
their money and that the accounts are in their name only.
They need to be able to open those accounts easily, so
things like, Bank On requires for these accounts to have a low
minimum opening deposit of $25 or less. They also need to know
that everything is transparent, so if the account costs $3 a
month, it is always $3 a month.
Ms. Velazquez. Thank you.
Ms. Del Rio, it's great to see you.
New York City's municipal ID card, IDNYC, was one of the
first municipal ID cards that could be utilized to open a bank
account or access traditional financial services.
Can you speak to the important role municipal ID cards are
playing in helping underserved communities gain access to bank
accounts and other mainstream financial services?
Ms. Del Rio. Yes. Thank you so much for that question.
Our organization was one of many that led the campaign that
resulted in the creation of IDNYC, a municipal ID card that is
available to all New Yorkers regardless of immigration status,
homelessness, and other factors. More than 1.4 million New
Yorkers have the ID, which was designed in close consultation
with local credit unions and banks, as well as regulators.
And one of the benefits of the ID was that it was designed
to meet the Federal Know Your Customer (KYC) requirement so
that banks could accept that as the primary and sufficient ID
to open accounts and extend other services.
Despite all of that groundwork, none of the big banks have
accepted IDNYC as the primary ID to open accounts, despite
regulators issuing opinion letters and other guidance.
That said, there is a strong network of community-based
credit unions and smaller banks that have accepted and opened
thousands upon thousands of accounts for New Yorkers who were
previously excluded. So the fact that banks continue to reject
that ID and discriminate against massive swaths of--
Ms. Velazquez. Ms. Del Rio, I have other questions.
Ms. Del Rio. Okay.
Ms. Velazquez. I just would like to ask a follow-up to
that. Why do you think more banks haven't been willing to
accept municipal ID cards as a primary form of ID? And what can
Congress do to help further their utilization by banks? What do
you suggest?
Ms. Del Rio. The banks have said that they needed guidance
from the regulators, that guidance was secure, and the policies
did not change.
We have bank compliance officers who tell us they believe
that this population is more prone to fraud and exposes the
banks to greater risk. We would argue that, if the banks
perceived these populations who rely on municipal ID cards to
be more profitable, they would change their policies pretty
quickly.
We know that there are Federal proposals now to secure more
clear guidance from the banking regulators about municipal IDs.
We think that examiners should actually look at banks' account-
opening policies, including their identification requirements,
and identify potential discrimination against protected
classes, including immigrants, and take strong action to change
that.
Ms. Velazquez. Thank you.
Mr. Chairman, I guess I have to yield back.
Chairman Perlmutter. The gentlelady yields back.
The gentleman from Kentucky, Mr. Barr, is recognized for 5
minutes.
Mr. Barr. Thank you, Mr. Chairman.
A recent FDIC study illustrates that rural customers are
more likely than their urban or suburban counterparts to do
their banking in person at a branch. Unfortunately, the trend
in bank consolidation and branch closures because of increased
regulation in a post-Dodd-Frank world has disproportionately
impacted rural areas.
My bill, the Promoting Access to Capital in Underbanked
Communities Act, is relatively straightforward, allowing for a
phase-in of capital requirements for de novo institutions,
including some provisions targeted toward underserved rural
areas and several other common-sense provisions to promote bank
access in unbanked communities.
My bill is supported by the Independent Community Bankers
of America (ICBA) and the American Bankers Association (ABA),
and, Mr. Chairman, I hope the Majority will agree to consider
my bill in an upcoming markup. I have had good conversations
with Mr. Lawson and Mr. Meeks about this legislation that would
help new bank formation in rural and underserved areas, and I
would urge Chairman Perlmutter to take a look at it.
Chairman Perlmutter. Mr. Barr, we will take it under
advisement.
Mr. Barr. Thank you very much.
Mr. Berlau, how might my legislation, which would spark new
bank formation, aid underserved communities, including unbanked
citizens in rural areas?
Mr. Berlau. It sounds like very good legislation.
There was a real problem, not just with Dodd-Frank,
although that was problem enough for smaller banks, but just
about the new requirements, particularly the FDIC, about having
to have so much capital, sometimes, like, 10 years' worth of
capital, to form a new bank, that just discouraged some of the
de novo applications there.
But, luckily, FDIC Chair McWilliams has been making de novo
approvals a priority, as well as the bipartisan leadership at
the National Credit Union Administration for de novo credit
unions.
But, certainly--and I have been saying that if you have
legislation to give the regulators incentive or to make it--to
have certain reviews where they would require it or streamline
the process for de novo banks, that would be very important and
very important for--
Mr. Barr. And, if I could reclaim my time, it is not just
about bank consolidation; it is the dearth of new bank
formation, the dearth of new charters. And that is really
hurting underserved communities.
If we really care about helping the unbanked, it would be
to provide them with greater diversity in the financial
services ecosystem, and that would be to encourage new bank
formation.
It is shocking to me how the Majority's witnesses have
identified that the solution to the problem of unbanked people
in America is to destroy banks. That is what we are hearing
today from the Majority's witnesses.
Think about this. If you put the Post Office in charge of
banking America, consider the finances of the Post Office
itself. The unfunded liabilities and the debt of the Post
Office at the end of 2020 was $188 billion, more than 250
percent of its annual revenue. This is like asking the
arsonists to put out the fire. It really is. It is absolutely
crazy.
And using the power of the government to crowd out the
public sector, to politicize banking, will make it harder--
harder--not easier, for Americans to access financial services.
The Paycheck Protection Program is an illustrative case
study in the comparative efficiency and effectiveness of the
private sector versus the government. Congress deputized
private banks to deploy aid to small businesses and was
incredibly successful.
Meanwhile, other assistance programs administered by the
government and government agencies have languished in
bureaucracy. Yesterday, the HUD Secretary was here, and we saw
it firsthand. Congress appropriated $45 billion for emergency
rental assistance, and less than 4 percent of it has actually
reached renters.
And we want to put the public sector in charge of banks?
Really? Politicizing banking is not a good idea.
Mr. Pawar, you said when a bank chooses whom to lend to and
whom not to lend to, it is making policy. Does that mean you
oppose banks categorically excluding providing financial
services to, say, the fossil energy sector?
Mr. Pawar. I didn't say that. What I did say was that
public banking, FedAccounts, are simply gap-fillers. A healthy
market does not leave this many people behind.
Mr. Barr. Let's not replace the private banking system with
government-run banks.
Mr. Berlau, how would that impact low- and moderate-income
individuals, if the public sector was in charge of banking?
Mr. Berlau. I think at the end, it was a preservation
measure that [inaudible] Danger that the public banking bill we
are discussing [inaudible] Fossil fuels, and you would
[inaudible].
Mr. Barr. You talk about redlining. If you put politicians
in charge of allocating credit, if you put bureaucrats in
charge of allocating credit, you are going to get redlining
everywhere.
I yield back.
Chairman Perlmutter. The gentleman yields back.
Mr. Foster from Illinois is recognized for 5 minutes.
Mr. Foster. Thank you, Mr. Chairman.
No matter how one prefers to expand access to banking,
establishing a secure and legally traceable identity remains
one of the biggest barriers to entry. Opening a bank account
requires a documented, verifiable identity. Know Your Customer
requirements mandate that banks must know with a high degree of
certainty whom their patrons are. The same applies to obtaining
Federal benefits without friction and fears of fraud.
This makes things challenging for consumers who don't carry
with them the specific legacy documents normally used to prove
your identity. A recent report from six banking trade groups
outlines verifiable identity as one of the chief reasons for
individuals being unbanked or underbanked in America.
A secure digital identity framework solves this problem. A
properly designed digital identity is a more secure and more
privacy-preserving form of identity that provides consumers
with a way to authenticate and verify who they are without
having to rely on your Social Security card or birth
certificate.
A digital ID would effectively eliminate most classes of
consumer identity fraud as well. Unlike legacy identity
methods, a digital ID is almost impossible to counterfeit. A
government-provided digital identity would alleviate the
challenges in obtaining ID and would pave the way for millions
of Americans to be able to verify their identity and to
participate in our increasingly-online financial system.
Many States, including, interestingly, many red States, are
already moving rapidly on this by provisioning digital driver's
licenses or mobile IDs to citizens who want them.
There are two significant steps that Congress can make to
encourage progress here.
First, there is now real bipartisan agreement for providing
universal access to affordable broadband for all Americans,
with significant funding provided in the pending infrastructure
proposals. Most of these proposals include some form of
payments to States for assisting new broadband customers. So,
if these broadband connections are bundled with a State-issued
secure digital ID, this would be transformative to access to
banking. It would also pay for itself in fraud-prevention costs
alone.
Second, the government has to get its act together in using
modern identity systems and stop using things like Social
Security numbers, birth dates, mother's maiden names, or
easily-hacked passwords as some sort of shared secret for
authentication.
Although it is not being noticed at this hearing, the
recently-introduced bipartisan Improving Digital Identity Act
of 2021 provides a roadmap for an all-of-government approach to
improving our digital identity ecosystem. I urge my colleagues
to have a look at this and to support this legislation.
So my questions, I guess, to Ms. Del Rio and to the whole
panel: Can you delineate some of the struggles that low-income
individuals may have in obtaining a bank account, particularly
as it pertains to proving their identity?
And how would an improved government-provided digital ID
framework help include more Americans in our financial system?
And, specifically, could you speak to how a government-provided
digital ID would disproportionately benefit lower-income,
rural, and minority consumers?
I will start with Ms. Del Rio.
Ms. Del Rio. Yes. Thanks for the question.
As you noted, the digital ID proposal is not part of the
hearing, so we would need to study that more closely. I do
think that there are big questions around data collection,
privacy, and other concerns that would need to be really
carefully looked at.
I also would say that the current Know Your Customer
requirements that you cite are actually quite flexible, and
they have been since the provisions were put into place many
years ago. And they actually allow for great flexibility with
financial institutions to accept a wide range of U.S.-issued
and foreign-government-issued IDs, consular-issued IDs,
municipal IDs, and so on. People without Social Security
numbers can provide the identification number from these other
ID cards.
Despite this flexibility that the regulators have
consistently provided, the banks too often go far beyond that,
and they create impediments that effectively block hundreds of
thousands of Americans from the banking system.
Other challenges that we have seen, other barriers include,
again, these overdraft fees that many of us have spoken about.
I just want to underscore that there is research by the Center
for Responsible Lending that shows it is a very small
percentage, 9 percent of account holders who pay more than 80
percent of these billions of dollars in overdraft fees, hidden
fees--
Mr. Foster. Yes, I was referring specifically just to the
digital ID aspects.
Do any other members of the panel have comments on this and
the benefits, and how this is affecting access to banking?
And I guess my time is about to run out. But if you have
any comments, specifically on the other legislation that I
mentioned, I would be interested in your response for the
record.
Thank you. I yield back.
Chairman Perlmutter. Dr. Foster yields back.
The gentleman from Texas, Mr. Williams, is recognized for 5
minutes.
Mr. Williams of Texas. Thank you, Mr. Chairman.
In full disclosure to our witnesses, I am just a small-
business owner from rural Texas. I have been there for 51
years. And I have heard here today that the Post Office today
is the most-trusted brand name in America. Well, it is not in
my district. And I would hate to think that the Post Office is
going to be an example for all of us to follow in the banking
system. Or maybe, I have a better idea, how about Amtrak
running the banking system?
So, if you want to increase financial inclusion, we are
going to need to empower the private sector to develop
innovative new solutions to bring people into the banking
system. In order to accomplish this goal, the government, of
course, needs tax policies that will incentivize our country's
entrepreneurs to take risk and deploy their own capital to
solve these problems.
And I would say simply, I can fix it. Let's just cut taxes
for everybody so people have more money in their pocket. Then,
they have a bigger check to take to the bank and create an
account. That is what it is all about.
Unfortunately, we have seen some tax proposals coming from
the Biden Administration that will make these types of
investments and a bigger check less attractive by significantly
increasing the carried interest in capital gains taxes. Well,
this is stupid. Without proper profit incentives, we are going
to have a hard time convincing investors, like all of you, to
go the extra mile to connect people who are unbanked.
So, Mr. Berlau, can you talk about how the Biden
Administration's proposed carried interest tax provision would
hurt venture capital firms and other angel investors who are
taking the financial risk to bring new financial products to
the market and hurt the small investor?
Mr. Berlau. Yes. Thank you.
I have written that it would. All partnerships are sort of
based on carried interest, although it is being sold as private
equity and hedge fund--I mean, real estate partnerships, angel
investors, just some basic small-business partnerships. And not
even just the rate, but going back 30 years, as far as saying
who contributed this capital to the firm, it would actually
hurt small-business partnerships and tilt things through to
corporations. So, I think it would be destructive more than
some people are anticipating.
Mr. Williams of Texas. Yes. It is double taxation, and you
would have fewer investors.
Second, in speaking with businesses during the Trump
Administration, many of them felt confidence in their
operations because there was certainty around the regulatory
environment. They were not afraid that there would suddenly be
a costly new regulation coming out of Washington, D.C., that
would force them to hire more compliance officers--and, say, in
a bank, more compliance officers and loan officers who don't
provide any additional value for their company or shareholders.
So, now that there is a new Administration in town, as they
say, and a new sheriff in town, this sentiment has changed to
uncertainty again and fear among business owners.
Mr. Berlau, can you discuss how this regulatory uncertainty
coming out of the Biden Administration can truly affect small
businesses, big businesses, and business investment?
Mr. Berlau. Yes, regulatory uncertainty can certainly
affect investors in small businesses.
However, I am an eternal optimist, and CEI is a nonpartisan
organization, and we have worked on things like, as I
mentioned, the SAFE Banking Act, which would provide clarity
for a lot of banks in States where marijuana is now legal, as
well as in the Obama Administration, the Jumpstart Our Business
Startups Act that made it easier to do equity crowdfunding
without having to show that you were a Fortune 500 company.
So I am hopeful, but, yes, always, the threat of new heavy-
handed regulation is threatening and hurts the economy.
Mr. Williams of Texas. No question about it.
We have heard some discussions about the Federal Reserve
offering bank accounts as a way to get more people included in
the financial system. And considering we have so many banks,
credit unions, and Fintech companies already offering this
service, I don't really understand how a public option would
solve this problem, because we know that when government gets
involved in something, it just creates another problem.
So another question to you, Mr. Berlau, can you talk
quickly about some of the negative side effects of creating a
Fed Account system?
Mr. Berlau. Yes, there are some negative effects. I think
for privacy, as far as this is the Fed directly having that
data of customers, and the data security issues of having
basically--the government can throw, like, a blockchain or a
ledger of all the data there.
Mr. Williams of Texas. Okay. Thank you.
And I yield back, Mr. Chairman.
Chairman Perlmutter. The gentleman yields back.
The gentlewoman from Massachusetts, Ms. Pressley, who is
also the Vice Chair of this subcommittee, is now recognized for
5 minutes.
Ms. Pressley. Thank you, Mr. Chairman.
In full disclosure, I am a Black woman, growing up in
America, who was raised in a redlined neighborhood and who,
once I was working as a full-time, unpaid congressional intern
and working three part-time jobs, piecing together various
money orders to pay rent, to pay utilities, I cashed my check
at a check-cashing facility, and I did that because that is
what I grew up in proximity to.
Neighborhoods like Boston and Worcester and Roxbury in East
Boston, which I represent in the Massachusetts Seventh
Congressional District, predominantly Black, Hispanic, and
Latinx, have 57 percent of the city's check-cashing locations,
yet only 12 percent of the city's commercial bank branches.
So, for my constituents and the estimated one in five
people across America who are unbanked or underbanked, lack of
access and fractured trust with financial institutions is
incredibly expensive. The cost of cashing checks alone can cost
up to $2,400 for households with an annual income of $32,000--
just cashing checks.
That doesn't even include the costs and penalties of payday
loans and the costs of not having credit. Being credit
invisible can make it virtually impossible to finance a car, an
education, a home, and even a cell phone plan.
Banking institutions understand the power of their
products. It is not an accident that communities of color have
less access to the wealth-building resources and services that
banks offer but are instead surrounded by high-cost, exploitive
options like payday lenders and pawnshops.
Banking deserts and the implicit and explicit exclusionary
practices of financial institutions are widening the racial
wealth gap. And we need bold legislative action to build an
inclusive, equitable economy.
Ms. Baradaran, I briefly described how few commercial bank
branches exist in the communities of color in my district and
throughout the country. However, these communities do have Post
Offices. Can you describe how an expansion of USPS services to
include banking would remove structural barriers for people who
are unbanked?
Ms. Baradaran. Thank you so much for the question, and for
drawing attention to the structural inequalities here. The
reason why those neighborhoods do not have banks was very much
a policy decision.
And, as Mr. Pawar said earlier, that is why credit is
public policy, because the majority of credit products that
have historically built the middle class were underwritten,
guaranteed by the Federal Government, and those communities
that were redlined just specifically because they were Black or
Brown did not get those loans. So that is what we mean by,
``credit is a public policy issue.''
And the same with the payment system. The Federal Reserve
controls the payments. We have ID requirements because Congress
has decided, I think rightfully, that we want to make sure
people aren't sending money for illegal things through the
banking system. This is how the public structure of the banking
system works, and certain communities have been left out of
that historically.
And those communities not only didn't get the credits to
build wealth and didn't get to--that is why we have the racial
wealth gap--but, also, the salt on the wound is exactly as you
said, the check-cashing fees, the overdraft fees, the payday
lending fees. And we are talking about even people who are
banked who have to go get a payday loan because of these
structural inequalities, and they are paying way more than
others. So, that is just salt on the wound. That is not even
getting to the structural roots of these issues.
And the postal bank exactly is just one solution of many
that we need to really tackle this massive problem. And that is
just because it is already there; those neighborhoods trust it.
We are not talking about the bells and whistles, but--
Ms. Pressley. Thank you.
Ms. Baradaran. --those can come later once people get that
account.
Thanks.
Ms. Pressley. Thank you so much.
And, Mr. Pawar, how would some of the greatest challenges
of being unbanked be solved by a national Baby Bonds program?
Senator Booker and I have introduced the American
Opportunity Accounts Act, which would ensure that every child
at birth not only has a basic savings account but also has that
account seeded with funds to be used for wealth-building
activities, like starting a business or buying a home.
Could you offer your opinion on the benefits of Baby Bonds?
Mr. Pawar. Yes. Thank you for that question.
One of the things that we have learned over the last 18
months that preexisted before the pandemic is that we lack the
financial infrastructure to deliver cash to people quickly.
And so, when we think about Baby Bonds or we think about
FedAccounts, what we need to do is have a base level of
infrastructure so that everyone can access benefits that they
are entitled to, they can receive money, they can pay bills, et
cetera, et cetera.
So it would simply function as a conduit to be able to have
that money parked somewhere safely, without subject to
extraction, and in a way that is accessible universally to
everybody.
Ms. Pressley. Thank you.
Chairman Perlmutter. Thank you.
The gentlelady's time has expired.
We now turn to Mr. Loudermilk of Georgia for his 5 minutes.
Mr. Loudermilk. Thank you, Mr. Chairman. I appreciate the
opportunity to be here, and I am so glad you needed me to be
here. That is encouraging.
President James Garfield, said, ``If Congress is reckless
and ignorant and corrupt, it is because the people accept
recklessness, ignorance, and corruption.'' That is what the
American people think about this institution. And just because
they think that we are reckless, ignorant, and corrupt doesn't
mean that we have to meet their expectations.
Just in the short time I have been here, I have seen some
really bad ideas proposed, and this one has to be near the top.
I can already see numerous problems with expanding the
government bureaucracy to be involved in helping people with
their bank accounts.
Think of this: Only 25 percent of Americans trust that the
Federal Government works in their interest--25 percent. Simple
math--I am not a banker either, but simple math is that 75
percent of Americans don't trust the Federal Government. But we
think that they are going to trust us with their bank accounts.
Look, let's talk about customer service. Customer service
is at an all-time low in the Federal Government. We don't even
have to bring up efficiency. Look at how much money our
government spends and how inefficient it is. If my colleagues
don't believe this, how about making a call to your constituent
services operation and ask them if the government is efficient,
if it is responsive, and if it provides any customer service.
So what I am wondering is, if this were to be enacted, are
our customer services representatives now going to be handling
people's deposits and withdrawals and dealing with government
agencies that are nonresponsive already?
I think this whole proposal is doomed to fail, not to the
American taxpayers, which it would be, but to the very people
that it supposedly is trying to help.
Now, think about who the base would be. According to FDIC
data, 95 percent of American households are banked. That means
5 percent are unbanked. Of that 5 percent, the majority of them
are unbanked because they don't want a checking account. But,
all of a sudden, we are going to let the Post Office handle it.
Oh, now everybody is going to want a checking account. I don't
think so. So, that means less than 2.5 percent of the people
would actually be interested in this type of service.
I would think that improving some of our existing system,
instead of overhauling it and creating a new bureaucracy, would
be the answer, and especially when you look at these agencies
and bureaucracies that can't even balance their own checkbooks.
But we are going to trust them to help us balance ours? I think
this is doomed to fail.
Fortunately, the growth of online banking has made it
easier to open checking accounts. The FDIC Chief Innovation
Officer said that the best way of banking the underbanked is
through technology. I think that is where the answer is, not
growing bureaucracies and giving the government more control
over the American people.
So, Mr. Berlau, is there any evidence that the banking
system is failing to adequately meet customers' needs?
Mr. Berlau. I think you are seeing Fintech and community
banks and credit unions rise to the occasion. And I think you
would see them even doing more so if you would streamline some
regulations, clarify who the true lender is in bank-Fintech
partnerships. And you would see even more if some of the red
tape were lifted.
Mr. Loudermilk. So, how has Fintech actually made it easier
to open a checking account?
Mr. Berlau. Apps like Dave, and Earnin, being able to just
put that on your phone; having sometimes low-cost advances to
cover what would be an overdraft, or to get what you have
earned before your paycheck comes. That is all--and they
partner with banks, sometimes the smaller banks. So, that has
made it easier for a lot of Americans.
Mr. Loudermilk. I am quickly running out of time, but what
improvements can we make to the existing system to help this
less than 2.5 percent who would actually want a bank account
but don't have one?
Mr. Berlau. I think both things like Congressman Barr's
bill with encouraging de novo banks, new banks being formed,
and also just clarifying who is a true lender, clarifying
valid-when-made, that banks know, if they have liquidity behind
these loans, they would certainly make more of them.
Mr. Loudermilk. Okay. Thank you for that. I appreciate
that. And Mr. Barr's bill is a good idea.
Thank you, Mr. Chairman, and I yield back.
Chairman Perlmutter. The gentleman yields back.
The gentleman from Texas, Mr. Green, who is also the Chair
of our Subcommittee on Oversight and Investigations, is now
recognized for 5 minutes.
Mr. Green. Thank you, Mr. Chairman.
Mr. Chairman, I happen to think that Ms. Ocasio-Cortez and
Ms. Tlaib have good ideas. I happen to think that the Public
Banking Act of 2021 is worthy of consideration.
And I happen to believe that you don't have to be a banker
to serve on the Financial Services Committee. In fact, most of
us aren't; very few of us are bankers. Very few of us have any
banking experience at all, yet we serve on the committee that
regulates not only banking but also other financial
institutions.
So, Mr. Pawar, I want you to know that I appreciate your
testimony today. I think you have been an outstanding witness.
And I don't know that you have to have lived something to
appreciate it and understand it.
With reference to banking, poor people, regardless of
color, regardless of hue, have great difficulty when it comes
to paying their bills. You heard Ms. Pressley. It touched my
heart to hear her talk about her circumstance. But they have
great difficulty.
Like Ms. Pressley, I grew up in poverty. There were very
few banks, if any at all, that I actually went into as a child
in my neighborhood.
Why wouldn't we want to help people who have to go to the
check-cashers, to these places where they are paying unusually
high fees to get what we get at no cost? Most members of this
committee have no-fee checking; I would bet my life on it.
We seem to think that the rest of the world exists in the
bubble that we live in. We are blessed. Unfortunately, we don't
understand the basic premise for being blessed, which is that
you should be a blessing to others who need help.
They don't live in the suites of life, the C-suites. Many
of them live in the streets of life. Some of them live under
bridges. They live in lean-tos and tents.
There seems to be a basic belief among some that the rich
need more to do more and the poor can do more with less. At
some point, we have to concern ourselves with those who are not
as fortunate as we are. And we who sit in these seats are some
very fortunate people.
So, yes, I support the notion that we should promote the
formation of public banks operated by local or State
Governments through the creation of a public banking incubator
program that provides grants and technical assistance to new
public banks.
Ms. Ocasio-Cortez, Ms. Tlaib, I think very highly of what
you are attempting to do.
By the way, I have never had a conversation with them about
this, but they are very intelligent people. They don't have
crazy ideas simply because they are different, simply because
they are innovators, simply because they understand another
side of life. I think this would help many of my constituents,
who are not as fortunate as most of the people who serve on
this committee.
And I yield back my 30 seconds. Thank you, Mr. Chairman.
Chairman Perlmutter. Thank you, Mr. Green.
Mr. Budd from North Carolina is now recognized for 5
minutes.
Mr. Budd. I thank the Chair.
Mr. Berlau, we need to be doing more as a society to give
Americans the tools that they need to be plugged into the
financial system. So it is very concerning to me that a
majority of students graduate from high school, some of them
even graduate from college, and they don't know how to balance
a checkbook or open a checking account, manage interest, or
procure a mortgage.
Without this basic knowledge, it is difficult for a lot of
folks to deal with complex financial situations that come up
later in life or even at that point in life. That is why I have
worked on financial education and financial literacy
legislation like the Financial Literacy Improvement for
Professionals (FLIP) Act, which helps build that foundation for
young Americans.
So, Mr. Berlau, what are additional ways we can educate
Americans about the resources that are available to them and
get them participating in the financial system earlier, rather
than feeling like a victim or that it is impossible? How can we
get them involved?
Mr. Berlau. Your legislation is a good idea. Also, the
Fintech apps showing just what you do with a small amount of
money, either saving or investing that, is a way to go where
the young people are, as far as online or on the apps.
It is also something that parents and teachers should not
be afraid to talk about, to talk about money, and at an early
age, to develop saving and investing and shopping for bargains,
those habits, as well as churches and synagogues and places of
faith.
Mr. Budd. Thank you.
A slightly different topic, Mr. Berlau, but quickly, if you
could answer: Do we really want the Federal Government
overseeing our financial transactions history?
Mr. Berlau. I don't think we do. I don't think it has a
good record as far as respecting privacy or data security or
other things.
And I appreciate Professor Baradaran having written a book
about George Washington, invoking him as far as the Post
Office, but I have also written that as a private citizen he
helped found the Bank of Alexandria. So, I think he could see
that banks and Post Offices serve different functions and
probably shouldn't be mixed.
Mr. Budd. Thank you.
Many of the so-called solutions that I hear about seem to
have a really counterproductive effect. Like a lot of the
solutions that come from the left, they sound sweet,
compassionate, sometimes they are even hypnotic or sermon-like,
but they really always have a counterproductive effect. They
hurt the unbanked and the underbanked consumers even further.
Bad policies like imposing a 36-percent nationwide APR,
thinning their credit files, postal banking, repealing the True
Lender law, that just makes the problems worse.
So, are there regulatory hurdles we can reduce that would
expand access to banking for the unbanked?
Mr. Berlau. As I said, before we had the Durbin amendment,
before debit card fees were tapped in Dodd-Frank for retailers
and retailers had to pay the costs of cybersecurity and
everything, banks were able to give more free checking
accounts, 76 percent in 2009. So, we could repeal that.
As well as, I think, just encouraging more bank-Fintech
partnership by setting standards for who is a true lender and
valid-when-made as far as being able to have a liquid secondary
market for these types of loans just as--
Mr. Budd. Mr. Berlau, let me just summarize quickly. So,
you are saying the Durbin amendment actually hurt the
underbanked?
Mr. Berlau. Very much so.
Mr. Budd. Thank you.
Mr. Berlau. By 1 million--
Mr. Budd. Thank you.
We have talked a lot about the important role that the
private sector plays in expanding access to banking with
innovation. One area is decentralized finance, which removes
financial intermediaries and puts consumers in control of their
finances with products like peer-to-peer lending.
What is an example or what are some thoughts on the promise
of new tools like this to help the underbanked and unbanked?
Mr. Berlau. I think cryptocurrency, decentralized finance,
blockchain, even blockchain with things like Congresswoman
Velazquez was mentioning with IDs, can provide a lot of new
tools, just as they are in some Third World countries and
things like that, for the poor and the middle-class.
Mr. Budd. Very good.
I will yield back my remaining time.
Thanks for being here.
Mr. Berlau. Thank you.
Chairman Perlmutter. Thank you, Mr. Budd.
Mr. Torres, the gentleman from New York, is now recognized
for 5 minutes.
Mr. Torres. Thank you, Mr. Chairman.
I just want to--someone brought up Fintech as a possible
solution to the crisis of the unbanked. It is worth noting that
50 percent, or nearly 50 percent of households living in
poverty in New York City have no access to the internet. So, if
you are at the wrong end of the digital divide, Fintech is of
no value to you, and brings you no closer into the mainstream
of the financial system.
I represent one of the most unbanked congressional
districts in the country. According to the FDIC, in the United
States, 5.4 percent of Americans are unbanked. In New York
City, the rate is 9.4 percent. In the Bronx, it is 17.7
percent. So, in the Bronx, the number of unbanked people is
nearly triple the national average.
And the lack of banking access leaves communities like mine
wide open to exploitation by predatory finance, particularly
check-cashing. According to the Department of Consumer Affairs,
New Yorkers, on average, spend more than $200 million a year on
check-cashing fees. And, in two neighborhoods in particular, in
the South Bronx, which is primarily Latino, and in Southeast
Queens, which is primarily African American, low-income New
Yorkers in those two neighborhoods spend more than $17 million
a year on check-cashing fees.
Is it fair to say that we have a financial system that robs
poor people of their fixed income, that essentially siphons the
most from those who have the least?
Professor, I don't know if you want to respond to that?
Ms. Baradaran. I think that would be a safe statement, yes.
Mr. Torres. And I am no--
Ms. Baradaran. I can elaborate, if you would like.
Mr. Torres. No, I can go on. I am no expert in banking, but
it seems to me the business model is straightforward: Banks
collect deposits, and then lend out those deposits. And banks
have an incentive to collect larger deposits in order to make
larger loans in order to earn larger profits.
And so, given those incentives, the market often fails to
serve the lowest-income Americans, who cannot afford minimum-
balance requirements and overdraft fees. And whenever there is
a market failure, it is not unusual for the government to
intervene with a public option, right? There are public
providers of healthcare. There are public providers of housing.
There are public providers of higher education. There is ample
precedent for the government intervening with a public option
in the midst of a market failure.
I don't know if you want to comment on that?
Ms. Baradaran. Yes. That is exactly right. It costs the
same amount of overhead to take a $500,000 deposit from a
corporate client as a $100 deposit from a person. And so, the
cost-benefit, the economics of banking doesn't support those
kind of small accounts.
And the reason we had a robust community banking sector
back--it wasn't Dodd-Frank that killed it; it was way before
that--was that we purposely regulated banks such that they
couldn't branch, they couldn't get larger. Every community had
to have a bank branch, and that was how banks could afford to
take these smaller deposits, because they didn't have that
heightened competition that we see now.
In today's market, it is really difficult for small banks
to lend, or to give deposit accounts to low-income people,
especially in LMI communities, where there aren't the profits.
So, it is not that the banks are greedy or bad or
especially, sort of gaming the system. It is just that the
system doesn't make it such that they can lend and give
deposits to low-income people.
Mr. Torres. Mr. Rothstein, I have a question about Bank On
accounts. Are Bank On accounts, no-overdraft accounts?
Mr. Rothstein. Thank you for the question, Representative.
Yes, all Bank On accounts have no overdraft fees and no
insufficient-fund charges on them.
Mr. Torres. There are about 10,000 banks and credit unions
in the United States. How many of them offer Bank On accounts?
Mr. Rothstein. To date, I think we are at 108, including
credit unions.
Mr. Torres. And of the 108, how many are banks?
Mr. Rothstein. I believe--I will get you a list after the
hearing, but I--
Mr. Torres. Are they majority banks or credit unions?
Mr. Rothstein. Majority banks.
Mr. Torres. Okay. Why is the participation so negligible?
Mr. Rothstein. I think, one, it is a newer program.
Mr. Torres. How long has it been around?
Mr. Rothstein. We have been certifying financial
institutions for 6 years now.
The big piece, I would say, though, again, is if you look
at the market share and the number of branches covered, it is
very large. About 40 percent of all the branches of banks in
the country offer at least one Bank On-certified account. And I
would say, probably--my hope is, by September, we are going to
be around 45 percent.
Mr. Torres. Should it be mandatory rather than voluntary? I
would say yes, but I am curious to know your answer.
Mr. Rothstein. That would either be tremendous job security
for me, or I would have to find a new thing to do.
No. I have mixed feelings. I really do. I think part of the
reason that Bank On works so well is that the banks and credit
unions themselves brand these accounts and fit them into their
suite of accounts. And so, if we take too much of a cookie-
cutter approach in mandating the accounts and we take away the
creativity and we take away the ability for them to position
the accounts in their community, then we are not doing--
Mr. Torres. I am in the red, so my time has expired.
Mr. Rothstein. I'm sorry.
Chairman Perlmutter. The gentleman's time has expired. I'm
sorry to cut you off again, Mr. Rothstein.
Mr. Rothstein. That is fine.
Chairman Perlmutter. I now recognize the gentleman from
Tennessee, Mr. Kustoff, for 5 minutes.
Mr. Kustoff. Thank you, Mr. Chairman.
And thank you to the witnesses for appearing today.
Mr. Berlau, can you talk about--I know we are all concerned
about the loss of bank branches over the last 10 to 12 years.
Can you talk about the effect Dodd-Frank had on the
exacerbation, if you will, of bank branch losses or decreases
over the past 10 to 12 years?
Mr. Berlau. Yes. There was a loss of community banks even
before Dodd-Frank, part of market consolidation. But Harvard's
Kennedy School did a study, which I would be happy to share
with you or others who are interested, which found it rapidly
accelerated after Dodd-Frank.
Not only like the State National Bank of Big Spring, Texas,
it didn't close, but it was saying it would just--because of
some of the regulations, it was just not offering mortgages
because it was too expensive to comply with the qualified
mortgage--and it had very few, if any, defaults--I think it may
have had no defaults--for a period of 20 years.
So, it just accelerated trends and made it costly for both
banks and credit unions to operate, and some had to close or
merge with others.
Mr. Kustoff. So, Dodd-Frank is a clear factor in the
decreasing number of bank branches over the last 10 to 12
years?
Mr. Berlau. Yes. There was a Harvard Kennedy School study
that showed that, as well as others, as well as if you talk to
the Independent Community Bankers of America, the Credit Union
National Association, other groups representing community banks
and credit unions, they will talk about how the debt has
certainly been a significant, substantial factor.
Mr. Kustoff. Thank you, Mr. Berlau.
Could you talk about the True Lender rule? And was the
rule, in your opinion, necessary to create any certainty within
the industry?
Mr. Berlau. It certainly would have helped, because,
basically, it would have brought the certainty that, say, the
larger banks have when they are issuing credit cards and they
follow national rather than State rules, say, on interest
rates. Large banks already have that for credit cards, but
smaller banks, which don't have the infrastructure for
underwriting that some Fintech firms have, it would have
brought certainty to them that they would have been able to do
this under the same privileges of the law as the larger banks.
Plus, the loans also certainly would still be subject to the
bank rules, like Federal rules, like fair lending and ability
to repay.
Mr. Kustoff. So, it's a true statement that the rule does
have an impact on financial inclusion?
Mr. Berlau. Yes, it would have, were it not repealed by
Congress. So, yes, it very much would have helped financial
inclusion. And I hope Congress can do a bipartisan solution, of
a similar rule.
Mr. Kustoff. Thank you, Mr. Berlau.
If I could, I don't think you have the benefit of this
letter. The chairman and the ranking member were sent a letter
yesterday from the Consumer Bankers Association about some of
the proposed legislation. In the letter I think the committee
members got, or at least I got, they addressed the Public
Banking Act of 2021.
I want to read a statement to you from the letter and ask
you whether you agree with it. This is about the Public Banking
Act of 2021: ``The entrance of another government-subsidized
entity into the consumer financial market would not only affect
the competitiveness of the nation's thousands of financial
institutions currently serving consumers and small businesses,
it would also expose American taxpayers to an increased
financial risk.''
Would you agree with that statement or disagree with it?
Mr. Berlau. I certainly would agree. That is in my
testimony.
Mr. Kustoff. Let me read another statement from the letter:
``The creation of a government-sponsored public bank option
with endless resources will likely leave many private
institutions with a distinct competitive disadvantage within
the financial services marketplace.''
Would you agree or disagree with that statement?
Mr. Berlau. I certainly would agree. And then, with the
government institution, it would also give the government more
discretion as far as if they wanted to cut off everything from
fossil fuel or, say, if one government didn't like marijuana,
they could cut that off and people would have less choices.
Mr. Kustoff. Thank you, Mr. Berlau.
My time is expiring. I yield back my 4 seconds.
Chairman Perlmutter. The gentleman yields back his 4
seconds.
The gentleman from California, Mr. Vargas, is recognized
for 5 minutes.
Mr. Vargas. Thank you very much, Mr. Chairman. And thank
you for this hearing. I appreciate it very much. I apologize
that I missed part of it. I had another hearing at exactly the
same time.
I did come in, in time, however, to hear one of my
colleagues say that the public doesn't trust us. Well, of
course, they don't trust us when you can't hear us speak with
one voice that we should be vaccinated. It is important to get
vaccinated. When we clearly don't say that, yes, President
Trump lost the last election and when we don't say clearly
that, yes, there was an insurrection here and, in fact, yes,
the Capitol was attacked; it wasn't just tourists walking
around.
But the part that I found kind of interesting, really,
apart from all that silliness, was the part about how you can't
trust the Federal Government, so you can't trust a public bank.
Because I would ask, well, are you part of the Federal
Employees Retirement System (FERS)? And they would probably
say, okay, well, that is the Federal Government. That is the
same people. Okay. Now, are you part of TSP? Yes. Well, that is
the Thrift Savings Plan that is made available to Members of
Congress. Okay. So, that is two public banks you are involved
with. How about Social Security? Well, yes, of course, Social
Security, too.
Wait a minute. I thought you don't trust the public--that
the Federal Government employees can't chew gum and walk at the
same time, yet you are involved in all these things. What about
that? ``Well, that is different. That is really different. We
can't trust it, when the idea comes from somebody else.''
I think it is a very intriguing idea that I think we should
pursue. And so I would like to ask--and, again, I appreciate
Ms. Ocasio-Cortez bringing it forward, very much.
I would like to ask Ms. Del Rio, in your testimony, you
state that the public banking affords communities an
opportunity to expand fair banking access and deepen the public
investment in affordable housing and other critical economic
sectors.
If you could speak a little bit about that, but focus on
the housing for me, that is the part that I think is very, very
problematic for so many Americans. Go ahead, if you don't mind.
Ms. Del Rio. Yes. Thank you so much for that question.
I want to be really clear, public banking, for us and the
coalitions we work with, is part of what we need to address
market failure by our current banking system. And what we
envision the public bank doing is really using the power of
public deposits.
For example, in New York City, we have an annual budget of
$98 billion, and that money sits right now in Wall Street banks
that are not reinvesting it equitably in our local communities
and our economy.
What a public bank could do is, first of all, strengthen
existing networks of community development--loan funds and
credit unions, these CDFIs that have filled the gaps that banks
have left in low-income neighborhoods and communities of colors
and that are providing full-service branches, low-cost and free
accounts, small loans at non-usurious rates. And these are
small institutions that do not have the economies of scale that
big banks do. So this can be done. And a public bank would
strengthen those institutions and help millions of individuals
across the country gain access to fair and equitable financial
services.
Beyond that, as you mentioned, it would partner with these
CDFI lenders and in other ways strengthen investments in truly
affordable housing, in small-business development, and in other
needs.
We envision that happening in several ways, one of which
could be in partner participation lending, for example, with
these CDFI lenders. Credit unions do this routinely. And what
it would do is allow small, community-based lenders that know
their local community needs to be able to, ``punch above their
weight,'' to underwrite projects that they on their own are too
small to finance, using the leverage that a public bank and
public funds would provide to those banks.
Public banks could also create secondary markets to
purchase loans. It could partner with credit unions in all
sorts of ways to address liquidity constraints that they face
and to make sure that they also are not overconcentrated in
certain industries and certain parts of their lending.
So it is really not a radical solution so much as taking
what is working already and building on it with public funds.
Mr. Vargas. Thank you for that very important discussion. I
appreciate it.
I do want to mention two things--one, a shout-out to some
banks. In California, we did convince many of the banks and
credit unions to use the Matricula Consular so we could have
people who were undocumented or didn't have the ability to show
a driver's license or others--now they do--to be banked. And
that, I think, was very, very positive. So, a shout-out to
them.
And lastly, I would say, I do find it so hypocritical that
people attack the Federal Government and they are part of the
Federal Government, say that it doesn't work, and yet here we
are, we are part of it.
Anyway, with that, I yield back. Thank you, Mr. Chairman.
Chairman Perlmutter. The gentleman yields back.
I would like to just say, Ms. Del Rio, it is not a novel
concept. Alexander Hamilton actually wanted to have a national
bank. So, I appreciate the gentleman's questions.
The gentleman from Tennessee, Mr. Rose, is recognized for 5
minutes.
Mr. Rose. Good afternoon, and thank you, Chairman
Perlmutter and Ranking Member Luetkemeyer, for holding this
hearing today.
And thank you to our witnesses for being here today.
As I have listened to--and, unfortunately, I haven't gotten
to hear all of the testimony and questioning, but, as I
listened early on to your statements, I couldn't help but
remember back to my youth as a 4-H member in Putnam County, and
my 4-H agents, Scott Chadwell and Donna Clouse, who came to my
fourth-grade class with a novel idea that was supported by one
of our local banks at that time called, ``First National
Bank,'' which was the 4-H Thrift Club.
And the idea was, you open--you go to your bank, you make
your way--you make the pilgrimage down to the local bank
branch, which, in my case, wasn't too far away at that time--I
lived in a small town--and you open a bank account, Chairman
Perlmutter, and you make a dollar-per-month deposit into that
account.
And if you did that for a whole year, then the bank gave
you a reward, which, in many cases, was things like a ruler or
a backpack or something like that, that was useful. And I
still--my wife calls me a pack rat, and I think she is right,
because I still have all of those tokens of appreciation from
that first bank account, which I kept open until I started
college.
It wasn't a very impressive sum that I had saved over the
8- to 10-year period, but the lesson that I learned from that
early experience of having a bank account and knowing my banker
and getting comfortable going into the bank has proven to be
very valuable in life.
As I listened to the discussion today, I noted some of the
comments, and Mr. Pawar, you said something about having
banking concentrated in the hands of a few. And I can think of
no more pernicious concentration than a public option.
In my time here in Washington, what I have come to conclude
is that having the government be in charge of things is a
particularly bad idea. There are a few things the government
needs to be in charge of: Public safety and policing and
protecting us from outside threats, those are things the
government should be doing. But getting the government involved
in banking is truly, I think, the worst idea that I have heard
as a Member of Congress, and I hope it doesn't happen, and I
will do everything I can to try to deter that from happening.
So, I think about where we are with respect to banking in
this country and the number of unbanked people, and I can't
help but reflect upon the unending appetite for imposing
greater regulations, which I think inevitably leads to making
banking less successful, less available, and more expensive for
Americans. And I would credit that as probably the number-one
ill that we should be trying to fix, is to lower the cost of
banking by eliminating unnecessary, redundant, duplicative
regulations that make banking more expensive.
As we have this discussion, I think it is important to
remember that unbanked households are more prevalent in rural
areas. Much of the Sixth District of Tennessee, which I
represent, is rural, where unbanked households account for 8.6
percent of total households.
A large portion of my district, as I say, is in rural
areas, and rural communities have seen increasing costs of
accessing financial services, in part due to branch closures.
We have heard that discussed today. As of the third quarter of
2020, there were 13,000 fewer banks--I think we have heard that
today, as well--in rural communities than in the 1980s. Where
my farm is, in the rural part of my district, that is very
true, with the two closest branches having closed in recent
years.
Mr. Berlau, could you discuss how Fintechs could step in to
try and fill that gap in rural communities?
Mr. Berlau. I think they could fill that gap just as far as
with people going online. Also, they could partner with retail
banks that wanted to open there. And hopefully, we will need
either the--keep pushing on the agencies on the de novo banks,
but they could partner as helping to provide underwriting and
all types of services to the rural banks.
Mr. Rose. And explain how the importance of expanding
broadband plays into utilizing this emerging technology?
Mr. Berlau. I think it is very important. We should really
have the incentives to invest in broadband there.
Mr. Berlau. I agree with you.
Yet, I also welcomed the news, Mr. Rothstein, of your
efforts, which reminded me of my early experience, by the way.
I commend you for the work you are doing in helping make
affordable bank accounts available. So keep up the good work,
and I hope that we can turn back the tide of interest in public
takeover of the banking industry.
And with that, I yield back the balance of my time.
Chairman Perlmutter. The gentleman yields back.
The gentleman from California, Mr. Sherman, who is also the
Chair of our Subcommittee on Investor Protection,
Entrepreneurship, and Capital Markets, is recognized for 5
minutes.
Mr. Sherman. Thank you.
It is interesting to hear this discussion of the true
lender issue. It is my colleagues who usually support States'
rights who are now bemoaning the fact that a device used, a
subterfuge used in conjunction with Federal regulators to
defeat State laws was swept aside by this Congress. And I look
forward to those who have talked about the true lender law to
embrace the idea of the Federal Government making all of the
decisions.
I do hope that one of our witnesses, for the record--
because this isn't a fair question to ask you--would take a
look at how many Americans don't just live more than 15 minutes
from a financial institution branch but are also never within
15 minutes when they either go shop for food or when they go to
work. I, for example, live in the least urban part of my own
district, so I am 15 minutes away from everything, but I have
to get food, and there is a bank next-door.
We need to provide people with more knowledge, particularly
in the high schools. We need to encourage employers to engage
in direct deposit with a bank. That means the bank will cut a
better deal for the customer and you will bring the worker into
the bank. And pay is too low, which is why we have so many
Americans who don't have a net worth of $1,000 and get hit with
overdraft protections, payday fees, et cetera.
I want to thank the committee for including in today's
hearing a discussion draft that would allow all Federal credit
unions to add underserved areas to their field of membership
and expand the ability of credit unions to lend to their member
businesses in underserved areas.
Mr. Berlau, with regard to the Expanding Financial Access
for Underserved Communities Act, you write in your testimony
that you support that approach. How, in your view, would this
bill help those consumers and small businesses who don't
currently have access to financial services?
Mr. Berlau. It would allow credit unions, which are limited
by field of membership rules now, to expand into those
underserved areas if they think that they could maintain their
safety and soundness. And the regulator would have to--the
National Credit Union Administration would have to approve
that.
But it would be liberalizing some of the red tape around
credit unions, which would be a very good idea. Also, I think
it would be good to let credit unions make more business loans,
to raise or repeal the member business lending cap.
Mr. Sherman. Thank you.
Ms. Baradaran, when it comes to the possibility of public
banking options, I am a political realist. I think the
operation and political hurdles are going to cause that to not
be adopted in my lifetime. Some members of the committee are
younger. So, in terms of addressing people's needs, I wonder
whether it might make sense to focus on some other more
available tools.
In your written testimony, you say that Congress should
focus on strengthening community reinvestment regulations.
Could you explain how the Community Reinvestment Act (CRA)
might be better leveraged to ensure that all Americans have
access to financial services, depository institution services?
Ms. Baradaran. Thank you for the question.
The regulators have recently proposed a new CRA rule for
notice and comment. And I do think that there are some really
robust changes to the CRA that could benefit a lot of
communitiies.
It is not going to help a lot of the communities that don't
have bank branches though, because the CRA is geographically-
focused. And that is one thing that the CRA reform can focus
on, is that there are a lot of CRA deserts around where there
are banking deserts, where the CRA requirements don't apply
because they are geographically-constrained. So that is one
reform, I think, that could potentially fix this.
And I would not limit our political imaginations for what
is possible. What the Federal Reserve did during the COVID
crisis was very much out of line with what it had done before,
and it was very good policy, and it had great work. And that is
a public bank. We have, actually, a public bank. And so, the
idea here is just to extend that reach.
Mr. Sherman. And I would hope that CRA would not only
direct banks into better serving the areas they do serve but
also give them credit for serving any area that is completely
unserved.
I will put in a plug for my own hearing, today at 2 p.m.,
on bond rating agencies. You are welcome to be here if you are
a member of the committee, whether or not you are a member of
the subcommittee.
I yield back.
Chairman Perlmutter. Thank you, Mr. Sherman.
The gentleman from South Carolina, Mr. Timmons, is now
recognized for 5 minutes.
Mr. Timmons. Thank you, Mr. Chairman.
Mr. Berlau, what flaws and/or hurdles exist in public
programs, such as the Post Office, that private financial
institutions don't have when attempting to reach underserved
markets?
Mr. Berlau. I think the fact that private institutions
compete against each other and they compete for new customers
and they are always looking for innovation is the key. And I
think the Post Office--again, there is a tension there between,
is this to rescue the Post Office or is this for the Post
Office to rescue others?
And in the flaws, also, I don't think as far as the
FedAccounts we want the government having direct access to
sensitive financial data rather than having to subpoena a
private bank. You have that layer there, consistent with the
Fourth Amendment. But there have been data breaches in the
government, as well as selective leaks, so with FedAccounts,
our government basically having its own blockchain, rather than
it being distributed, what could happen there?
Plus, the question about it arbitrarily cutting off certain
industries, as the Public Banking Act does for fossil fuels.
Mr. Timmons. I feel like you are reading my mind.
I am going to go in a little different direction now. Would
a market-based solution that leverages an existing financial
system, such as credit unions, get these financial products and
services into the underserved markets faster and would the cost
be less than with a government program?
Mr. Berlau. I would think so, if we pushed more de novo
credit unions, get more new entrants into the system. And what
is already going on with community banks and credit unions and
some of the entrepreneurial Fintech firms, yes, it is
happening, and if we were to clear up some of the red tape, it
would happen even faster.
Mr. Timmons. And we have thousands of credit unions and
small banks across this country. Why wouldn't we just
incentivize those entities? And what would happen to them if a
postal banking option was created?
Mr. Berlau. It would be a government-subsidized
competition, with the privileges of that. And it would also--
especially with FedAccounts, you are talking about having the
deposits that are used to make loans now, so you would see sort
of a suffering across the system as far as drying up for
business loans. Some of the bank associations have warned about
that.
Mr. Timmons. And the credit unions and small banks, they
employ tens of thousands of people all over this country. And
would they likely not be able to compete in this market and
therefore lose market share and likely therefore lose jobs?
Mr. Berlau. I think, yes, it would take--when you have the
advantages of the government and a budget from that, a budget
that is all tied to a Federal Government that could print its
own money, yes, that is a significant competitive advantage
they would have over credit unions and community banks.
Mr. Timmons. But I imagine they could go get jobs at the
Post Office. There would be a lot of new jobs there.
I just don't understand this proposal. I think this is a
very important issue that we need to have good policy to pursue
and fix it and make legitimate strides. But I think my
colleague just said that this is not a proposal that will
likely happen during his lifetime, so I would really hope that
we can find some better ways to incentivize the free market,
incentivize banks and credit unions to address this important
issue. I am really hopeful we can find some policies there.
You mentioned a lot of the biggest concerns I have. This
has, ``Big Brother,'' written all over it. Would the FBI need a
search warrant? Would the IRS be able to track what you put
into your bank account and then say, ``How are you depositing
all of this money every week? You are not paying taxes. You
don't have a job.'' There are so many problems with privacy,
not to mention data breaches. The Federal Government is
terrible at cybersecurity. And to think that we are going to
put millions and millions of consumers' records into the
Federal Government's hands, it is just not a good plan. At the
very least, we should address cybersecurity before that.
I do hope that we can address this issue in a meaningful
way with good policy, because I do think it is very important.
With that, Mr. Chairman, I will yield back. Thank you.
Chairman Perlmutter. The gentleman yields back.
I think I need to defend the Post Office, which actually
did provide banking services for about 50 years or more after
there was a failure of the banking system back in the early--
like, 1908, there was a failure at the banking system.
So it has been in existence, and it may be a policy matter
for us to decide whether we want to put them back in the
banking business or not. But I just, for some of my friends who
have said this is the worst idea possible, clearly, this has
been something that has been on the books for many, many years.
With that, I yield 5 minutes to Mr. Lawson, who is
attending from his office and is participating virtually.
You are recognized for 5 minutes, sir.
Mr. Lawson. Thank you, Mr. Chairman.
And I would like to welcome everyone on the panel to this
hearing.
One of the things I would say in just getting started is
that I grew up in a rural area about 12 miles from the city,
longer in the end. By the time I was 15-years-old, I was able
to go in to establish a savings account at a bank without any
problems. And most of that I would attribute to the fact that
either the 4-H club or the Future Farmers of America (FFA)--in
attending those programs, where people brought information in
telling you what you really could do, and so you had a great
relationship.
I would be opposed to the Post Office going into the
banking business, because we have so many problems in Florida
even with mail delivery, where people are constantly calling my
office about how they can't get their mail, what is going on,
there are not enough people working there, they have to hire
people. And I don't know how that option would actually work,
but I don't think that we should dwell on that at this time.
But my question to the whole panel will be: Bank overdraft
practices have been a barrier for far too long for low-income
families, for as long as I can remember. And because I have
been involved in the financial area for over 34 years, I see
these same kinds of problems that are coming up over and over
again.
According to the Consumer Financial Protection Bureau
(CFPB), 80 percent of the billions lost in overdraft fees this
year are draining the families who have daily account balances
which average over $350, so that is pretty low.
And my question would be--because a lot of you all have all
of the academic information and have been involved and
everything else, and I know this is true from a lot of people
that I have dealt with in the financial world for many, many
years, how, then, can the credit unions, the community banks
come up with a policy that can help these individuals and, at
the same time, be compensated in some way other than charging
high overdraft fees?
Ms. Del Rio. May I answer that?
Mr. Lawson. Yes. It is to the whole panel, for anybody who
wants to respond.
Ms. Del Rio. Sure. I am happy to start.
I will say that the CDFI credit union that I am a part of
does not charge hidden overdraft fees to our members. We see
too many banks and even credit unions relying on these high and
hidden fees as profit centers, especially in environments with
low interest rates. So it is something that we categorically do
not do, and we find other ways to sustain our operations and be
profitable on our operations alone.
Through my organization, New Economy Project's, legal
hotline, we also assist hundreds of New Yorkers every year who
call our hotline, in many cases with problems that relate to
overdraft. And what we see routinely is that many people are
charged these fees repeatedly, it adds up to hundreds of
dollars or more at the end of a month, and when they are not
able to repay those exorbitant fees, the banks will actually
close their accounts, driving them out of the banking system,
and then report those individuals to check systems and other
consumer reporting databases. That, then, effectively
blacklists those same people from opening accounts elsewhere.
So, this is one way in which it is a massive extraction of
wealth from neighborhoods of color, especially from low-income
people, and it is also decreasing banking access. It is
actively driving people out.
So, addressing these consumer reporting databases, these
overdraft practices, which the Federal Government has the
authority and the ability to do, would go extremely far. Thank
you for that question.
Mr. Lawson. Would anyone else like to comment?
Mr. Berlau. It was a very good question. I would also say,
sometimes a small loan could be--even if you look at the APR,
it is a better alternative than an overdraft. So, if you have
more small loans, like, say, from bank or nonbank lenders, that
could be--it may not be a super alternative, but that would be
a better alternative than having an overdraft, plus it wouldn't
harm your credit score.
Mr. Rothstein. I also just want to say, Representative
Lawson, that the type of accounts that don't have overdraft,
that are fundamentally no-overdraft accounts, are extremely
popular. So, whether it is the Bank On certified accounts that
have more than 2 million people opening accounts in the last
year recorded or even other products that are out there that
don't have it, this is the movement for first-time workers, and
younger people. These are popular accounts.
Mr. Lawson. Thank you, Mr. Chairman. I yield back.
Chairman Perlmutter. Thank you, Mr. Lawson.
The gentleman's time has expired.
The gentlewoman from New York, Ms. Ocasio-Cortez, is
recognized for 5 minutes.
Ms. Ocasio-Cortez. Thank you so much, Chairman Perlmutter.
I think one of the things that is important to acknowledge
is that this is one of our first congressional hearings on
public banking in modern American history. And today is a
historic day. I think it is a day worth celebrating. And I
thank the Chair for his courage and his political courage and
for being willing to convene this in front of the Financial
Services Committee.
Now, I learned a while ago--when I first got to Congress, I
thought, man, people definitely study what they are talking
about here. Then I got here and I realized that people don't
even--a lot my colleagues don't even read the bills that they
are commenting on.
But for anyone who is curious, it is right here at the
desk. We are making lots of statements that have nothing to do
with the legislation. And frankly, if I made comments that very
publicly demonstrated that I didn't read the legislation I was
discussing, I would be embarrassed. But that is an aside.
Here on Planet Earth, though, this bill is about providing
a public option for financial services--an option, not a
government takeover, right, Mr. Pawar? This is not about a
government takeover of all banking services in the United
States.
But I do think we should talk about how things work now.
Let's talk about some of the extractive practices of private,
for-profit banking in this country and why we desperately need
a public option.
So, Ms. Del Rio, when a commercial bank decides whether to
make a loan and what interest rate to charge, it considers not
only the riskiness of the loan itself but it also incorporates
the bank's target profit margins based on their quarterly goals
and shareholder dividends, correct?
Ms. Del Rio. Yes. I would say that banks are driven by
profit-maximizing motives.
Ms. Ocasio-Cortez. So it is not this mythology of, we have
this interest rate based on how risky the loan is, but it is
also, we have this interest rate based on how much of a profit
margin on Wall Street we want to make.
Now, isn't it the case that a public bank is likely to be a
cheaper option than Wall Street for businesses and governments
who seek affordable credit? Because a public bank is not-for-
profit, so it doesn't need to pad its interest rates in order
to make a profit, isn't that right?
Ms. Del Rio. Right. A public bank would be chartered to
serve the public good, and it would remove the profit-seeking
shareholders from the equation and allow for other benefits
other than maximizing profits.
Ms. Ocasio-Cortez. And a public bank ostensibly wouldn't
have billionaire CEOs who are paid hundreds or thousands of
times the amount that their lowest-paid employees are paid,
isn't that correct?
Ms. Del Rio. Yes. That is certainly our vision for public
banking.
Ms. Ocasio-Cortez. Now, in the same vein, public banks are
able to extend credit and banking services to communities that
Wall Street has deemed unprofitable, correct?
Ms. Del Rio. Yes.
Ms. Ocasio-Cortez. I represent parts of the Bronx, where
more than half of the residents are either unbanked or
underbanked. And we heard some stories today that I thought
were very optimistic and rosy, like Wall Street executives will
want to compete for business, and of course, they will extend
services in low-income communities. But we are talking about
Earth, right? And, on Planet Earth, there are a lot of
communities that are not profitable to bank.
How would the Federal Public Banking Act complement State-
and city-level efforts across the country?
Ms. Del Rio. Yes. Thank you for that question.
We talk about the Federal Public Banking Act as a game-
changer for local efforts like ours in New York, where we are
working with broad-based coalitions and more than 65 State
legislators to create a State framework for local public banks
across New York City.
Right now, cities that would seek to charter public banks
would have to go through commercial bank charters. What our
legislation locally would do is create an appropriate and safe
and sound framework with capitalization requirements and many
other provisions to ensure sound governance--
Ms. Ocasio-Cortez. Thank you. And I apologize for cutting
you off, but I just have 30 seconds left. I am so sorry.
Now, one big thing that people didn't know: Most public
entities at State and municipal levels actually are forced to
rely--your State, your city bank, the bank that your State and
city works with are commercial banks too, right? A lot of
people don't know that your city actually has to bank, keep the
city's money with, like, a Chase or a Bank of America or a
Santander, et cetera, because there is no public bank.
And, as a result, those private banks can actually refuse
to finance projects that are against their financial interest,
right? Like, they can refuse to finance things like worker
cooperatives or renewable energy projects if it cuts against
their own profit margin. isn't that correct?
Ms. Del Rio. That is absolutely correct.
Ms. Ocasio-Cortez. Interesting.
Chairman Perlmutter. The gentlelady's--
Ms. Del Rio. The Act would provide technical assistance and
grants and be a complement to local and State frameworks like
ours in New York.
Ms. Ocasio-Cortez. Thank you.
Chairman Perlmutter. The gentlelady's time has expired.
The gentlelady from Michigan, Ms. Tlaib, is recognized for
5 minutes.
Ms. Tlaib. Thank you so much, Mr. Chairman, for holding
such an incredibly important hearing about, I think, a really
critical issue, especially because many of these broken systems
and structures that we continue to talk about existed prior to
the pandemic, and, if anything, the pandemic just exposed how
broken they are.
So, I am so incredibly grateful for my colleague from New
York, Representative Ocasio-Cortez, for leading the charge and
reintroducing the Public Banking Act this Congress.
Chairwoman Waters, thank you. Thank you for always wanting
to continue to speak these truths about these broken structures
within our country and our communities, especially communities
of color.
I represent the third-poorest congressional district in the
country. And so, when people say, why do these things, it is
because, I move with a sense of urgency. I don't have days or
weeks for my residents. They are literally dying because they
have no access to thrive.
Nearly 20 percent, a quarter of U.S. adults, are unbanked
and underbanked. And one of the most profound ways that this
discrepancy has affected my residents is in housing. And this
is not just somewhere to sleep. This is where people use their
housing to put their kids through college, to get out of
poverty. It is stability.
So it is really bizarre--maybe not bizarre; maybe there is
a different word--when people say, too-big-to-fail, we have to
bail them out right now. And what a funny thing, ``too-big-to-
fail.'' How about this? People. People are too important to
fail. People in our country.
So, when people talk about funding and all of this stuff--I
keep hearing $700 billion to bail out the big banks. Guess
what? The Special Inspector General says that the total was
more like $16.8 trillion, and $4.6 trillion has already been
paid out.
The Great Recession that killed neighborhoods in my
district was because of big banks. They devastated our local
economy. Literally, foreclosures at the highest rates we have
ever seen. Historic unemployment rates. Destroyed families in
this country. It was the big banks. That is who did it.
So, when we introduce bold initiatives where we say
everyone should be included, we should have accessibility, we
should not be judged for trying to do what is right. Because
when I look at Michigan, we lost more Black homeownership than
anywhere in the country. In 2019, homeownership rates of Black
Americans in my community dropped to the lowest level since the
Fair Housing Act was enacted in 1968. Do you hear me? That is
how low it has gotten. It is close to 40 percent now.
People used to envy Detroit, used to look at Wayne County,
Michigan, and say, man, how are they able to lift people out of
poverty? It was because of housing. So, when commercial banks
shut out Black and Brown people from lending, they are not just
closing the door on homeownership; they are closing the door on
saving for children's education, the opportunity to build
businesses, and the ability to retire with dignity.
And so, it is hard for me to hear my colleagues sometimes
judging my residents, because guess what, the majority of my
colleagues are millionaires. They are in an income bracket that
is so disconnected from the majority of American people in this
country, that they don't understand what it means to live
paycheck to paycheck.
I remember the first time I was here, people were
wondering, why are the Federal employees in the food bank line?
And I thought, what are you talking about? You just shut down
the government. They live paycheck to paycheck. Of course, they
are in the food bank line. They have to feed their children and
their families.
Ms. Baradaran, How would access to public banking help
residents in my community move towards homeownership and build
wealth?
Ms. Baradaran. Thank you for articulating that contrast
really well.
Access to public banking for residents is exactly what
access to public banking for banks would do: It saves them. It
throws them a lifeline when they are out of liquidity.
This is what we did in the financial crisis. So, to people
who say, ``Oh, well, let the private market do it,'' the
private market would have failed. It would have been a
completely bankrupt market in 2008, and again in 2020. And the
public sector--the Federal Reserve, along with the Treasury and
Congress--came in to save a lot of those public banks. And they
asked them politely to please send some of those funds on to
individuals. They had the choice, and they decided not to, in
some cases.
And so, when we talk about public money going to people, it
is the same way that we do with banks. And if banks aren't
choosing certain communities to help that they have not chosen,
then we remedy that directly. It is just taking out the
middleman. This is not a revision, this is not a radical--
Ms. Tlaib. It is about accessibility, period. It is like
they don't want all of us to have access. Because during the
pandemic, one of the things that came up was obviously the
Paycheck Protection Program (PPP). And guess who screwed my
residents? The banks.
In my district, smaller, Black-owned businesses struggled
to claim the PPP program aid they needed because they lacked
preexisting relationships with big banks. I had to call
Chairwoman Waters a number of times to tell her, this bank is
doing this, this bank is doing that.
Ms. Del Rio, would public banking make administration of
economic stimulus programs like the PPP program or the economic
impact payments faster and more efficient for our communities?
Ms. Del Rio. Yes, it would. And you can see that in public
banks throughout the world, including in North Dakota, which
had the highest rate per capita of PPP loans, in part because
of what the Bank of North Dakota did to help local lenders get
those funds out.
And I will say also that, in New York and nationally,
CDFIs, small lenders, had an outsized role in getting PPP funds
out to small businesses. My relatively tiny $85-million CDFI
credit union that I serve on the board of--
Chairman Perlmutter. Ms. Del Rio, the gentlelady's time has
expired.
No other Members are here.
I want to compliment and thank everybody. This is the best-
attended hearing this subcommittee has had. I want to thank you
all. Obviously, a lot of strong passions have been expressed.
This is a very serious subject.
I want to thank the witnesses for their testimony today.
You really helped kind of enlighten all of us, on all sides of
this, and so I appreciate that.
Without objection, a number of letters will be submitted
into the record, from Prosperity Now, the American Bankers
Association, the Bank Policy Institute, the National
Association of Federally-Insured Credit Unions, the American
Financial Services Association, the Consumer Bankers
Association, and the Electronic Transactions Association.
The Chair notes that some Members may have additional
questions for these witnesses, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
Thank you very much for participating in this hearing, in
person and remotely. We appreciate your testimony.
And, with that, this hearing is adjourned.
[Whereupon, at 12:37 p.m., the hearing was adjourned.]
A P P E N D I X
July 21, 2021
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